The United Arab Emirates’ plan to extend visas for foreign homebuyers to three years from six months could lift demand in Dubai’s slumping property market, Citigroup Inc. said.

The U.A.E.’s federal government yesterday agreed to
lengthen the period to “enhance the attractiveness of the real
estate sector,” the state-run Emirates News Agency said. The
period was shortened to six months from five years in May 2009,
sparking criticism from homebuyers and investors.

“This could significantly boost demand in the residential
real estate sector, particularly in Dubai,” Citigroup analyst
Farouk Soussa said in a note to investors today. “The overall
impact on the property market is likely to be somewhat muted by
oversupply issues that are being exacerbated by the ongoing
completion of new properties.”

Dubai home prices have dropped 64 percent from their peak
in mid-2008 after the global credit crisis caused mortgage
lending to dry up and speculative demand waned, Deutsche Bank AG
said in June. In Abu Dhabi, prices slid 55 percent, investment
bank Rasmala estimates. Investors from across the Middle East,
sub-continent and United Kingdom purchased homes in Dubai from
2002 as property ownership qualified them for a five-year
residency visa that was easily renewed.

The government dampened housing demand in 2009, when it
shortened the visa duration, set a minimum property price of 1
million dirhams ($272,264) and required holders to leave the
country and return for renewals, Citigroup said. The U.A.E. also
charged 2,000 dirhams for each new visa.

‘Key Attraction’

“The limitation on visas for home buyers in 2009 removed one of the key attractions for foreign, and especially regional, investors in the Dubai real estate market,” Dubai-based Soussa wrote today.

The government didn’t say whether the other visa requirements imposed in 2009 would be changed.

The Dubai Financial Market Real Estate Index, a measure that includes the shares of five developers, rose 1.5 percent today, its highest close since June 23. Emaar Properties PJSC,
developer of the world’s tallest tower in Dubai, climbed 2 percent to 3.02 dirhams. Arabtec Holding Co. (ARTC), the country’s biggest construction firm, added 2.4 percent to 1.28 dirhams. The shares had their biggest gain in a week.

Dubai’s home prices are expected to decline further as 54,000 homes, or about 15 percent to 20 percent of the existing supply, comes onto the market from 2011 to 2015, Jones Lang LaSalle Inc. estimates.

No Recovery Yet

“It is premature to speak of a recovery in the property
sector driven by visa extensions, as the net impact is likely to
be more one of reducing the negative repercussions of
oversupply,” Soussa wrote.

For the changes to boost demand, the government needs to
make it clear that the extensions won’t be changed again soon,
he said.

The move “will significantly enhance investor confidence and drive the growth of the country’s property sector,” Emaar Chairman Mohammed Alabbar said in a statement. Emaar is the country’s largest developer.

About 85 percent of the U.A.E.’s population are foreign nationals and require visas to live and work in the country. The government’s 2002 decision to allow foreigners to own property in certain areas helped make Dubai the world’s fastest-growing real estate market until the financial crisis caused it to collapse in 2008.

To contact the reporter on this story: Zainab Fattah in Dubai on
zfattah@bloomberg.net