Joint Venture with a local partner

As stated in the federal law, Investments must be a joint venture between the foreign investor and the local partner. The local partner must own at least 51% of the venture. According to an article of the website ameinfo. com (2006), the 49% restriction on foreign ownership of any business may restrict the foreign investor in investing more businesses in Dubai. The majority of the shares would always remain with the UAE. Foreign investors would think that since they only have the minority share then the power to control the business is in the hands of the local partner.

The local partner can overrule the decision of the foreign investor. This is a huge risk for the foreign investor because the investor must be able to trust his local partner before doing business. According to the international citizen website, Dubai Law does not permit banks to repossess homes if mortgage payments are not maintained. There are also no eviction laws present. This may cause people to think that there is no security because lenders have no hold against the client if mortgage repayments are not made.

In other words, investors could think that if more lending is made, more people would be able to buy and the market could go up. However, since this is not the case, the potential for a further growth in the market is extinguished. There are two financial institutions that could help in buying properties; these are Dubai Islamic Bank and Amlak. However, because of the sharia law, these financial institutions would not let an investor buy a property using mortgages. Sharia system is rather than telling investors to pay a mortgage, investors pay on a lease back basis.

At the end of the lease, investors buy the property for 1 dirham from the bank. Another aspect of the law that the investors can look into is the idea that they only hold a right regarding the property but they are not allowed to own the property. In a nutshell, Dubai government still owns the property. The international citizen website further concluded that the Foreign Investors who really likes to invest in Dubai are putting a lot of faith in the economic situation of the country.

In order to gain investment, these investors get a local to put their name on the ownership deed, according to a businessman that the website stated in their report. Oversupply of Real Estate and Lower Rental Yields As stated in the benefits, the government of Dubai believes in building first before business comes in. However, if the government continues to do so, the real estate market can have an over supply in the market. Thus if this happens, yields in rent could go down. On the other hand, the ameinfo website, states that the market had been experiencing low rental yields.

This could be explained by the rising number of investors in real estate. Comparing the risks and the benefits of investing in Dubai, it is better to choose to invest in Dubai than choosing not to. By choosing to invest in Dubai the investor would be able to be a pioneer in the international market that Dubai is trying to establish. The investor would enjoy the benefits of low taxes, and cheaper prices on real estate. The track record of the economic growth of Dubai only shows that the company is worth investing in.

There is a small risk of rental yields going down for the real estate properties this is because the country is improving on its international market and chances are, more and more people would come in the country. If this happens, real estate property would be in demand. With regard to the joint-venture with a local, foreign investors must look for a trust-worthy partner locally. In the first place, the investors would not be interested in the market if they knew that there are no trustworthy partners in Dubai. Investors must make sure that their source of fund is available in buying investments.

As we all know, when you are investing a large amount of money is needed. When borrowing or mortgaging property, the foreign investor must make sure that funds are available for the investment since the banks do not allow mortgages to buy a certain property.

REFERENCES

Dubai Life. 2006. 75% of Population In Dubai Is Male! http://www. thedubailife. com /index. php/main/newsfull/75_of_population_in_dubai_is_male Foreign Direct Investment, 2003. Dubai: an ambitious emirate . http://www. fdi magazine. com/news/fullstory. php/aid/297/Dubai:_an_ambitious_emirate. html