Dubai granted land decree a catalyst for city building, says official

A decree allowing for the mortgaging of granted land in Dubai will spur development across the city, says a top official.

Banks have sometimes been reluctant to lend to Emiratis using such land as mortgage collateral because of recoverabil­ity and security of tenure issues, said Mohamad Khodr Al Dah, a director of the department’s technical affairs division.

“It was very hit and miss and very risky for the banks, and the procedure was not clear for locals,” Mr Al Dah told reporters on the sidelines of a Chestertons Market Talk event “This law has really cleaned it up. What it says is that we, the government, allow the banks to mortgage, we allow you to take a loan on it, we allow you to benefit financially from the plot but with a big caveat – the money you get from the bank has to be spent on this plot.”

Granted land is property that is owned by the Dubai government, which is given to Emiratis either for residential, commercial or industrial purposes.

It cannot be sold by those who hold it but it can be inherited and, under a law passed in 2010, be converted into freehold on payment of a percentage of its value to the government.

Granted land also has to be used for the specific purpose for it was first granted.

The aim of the decree is to allow the landowner to be able to use funds for investment into the site – be it a factory, car showroom or a residential plot.

“The regulations will not allow you to put a five-star restaurant where they are fixing ships. But what the government wants to see is if you are a shipbuilder, you can take money to build a shipbuilding factory.”

He also said that by law there are time limits associated with the grant and that land that remains undeveloped can be taken back by the government if it is not developed.

“The whole point of granting the land is not to make the ­local rich but to develop the city,” said Mr Al Dah.

Ismail Al Hammadi, the managing director of Al Ruwad Real Estate, said that the decree served two useful purposes: providing capital to accelerate construction while also protecting the rights of investors.

He said it would also indirectly contribute towards plans to develop Dubai’s industrial sector by providing finance that will allow business owners to improve their sites.

Still, the effect on the wider property market may be limited said Jesse Downs, the managing director of consultancy firm Phidar Advisory.

“Banks rarely accept land as sole collateral because land is particularly illiquid in periods of slow growth or decline,” she said. “Banks require collateral to mitigate risk, which most likely arise during market down cycles. In times of decline and uncertainty, land prices can easily fall 50 per cent in prime and secondary locations – often, there is no demand for land. As long as Dubai’s real estate market remains volatile, land will have a limited role as collateral.”

mfahy@thenational.ae