The real estate market is awash with ever more grandiose housing projects to entice investors. And there is no shortage of local buyers. Apartment prices have hiked in cities such as Dubai and Doha, buoyed in particular by a surge in expatriate populations. Demand for rented accommodation has in turn fuelled the buy-to-rent market and, increasingly, foreigners are being encouraged to buy into the property sector.

A flurry of property legislation since 2001 has resulted in both Muscat and Bahrain allowing foreigners absolute freehold ownership, while homebuyers in Dubai are being offered 99-year leases. Only a decade ago, no country on the Arabian peninsula permitted outsiders to own property. But while these changes are widely regarded as a spur to the booming market, obstacles remain for states in adapting to these new laws.

'The challenge is really to ensure that there is harmonisation between government authorities,' says Abdul-Haq Mohammed, a solicitor at UK law firm Trowers & Hamlins. 'This is needed so that the land registry is able to deal with the massive increase in transactions that these changes will bring. In Dubai, there was a period when certain government departments were slow in acknowledging that the foreign ownership laws had changed and were therefore holding up the registration process.'

Although new ownership laws are welcomed by many in the market, more effort is required to improve the efficiency of the existing bureaucracy, which in turn is likely to help banks in financing home buyers. 'Certain GCC states need to have their land registration systems updated,' says Mohammed. 'At the moment, there is a considerable delay before a title is allocated to a particular plot on a development especially in freehold apartment blocks which means banks have little security against which to finance purchasers.'

Making local judicial systems more efficient is also expected to have a positive impact on the existing high cost of personal loans. 'Banks feel that the legal system would make enforcement in the event of default a lengthy and painful process,' says Mohammed. 'As a result, banks in the GCC have often treated home finance as being equivalent to personal loans in terms of risk, and prices are therefore much higher than in the UK and Europe.'

However, harmonising legislation across government departments in the GCC is not the only challenge. Developers keen to cash in on the booming property market should ensure that they have completed all the necessary red tape before contractors start work. 'Developers need to market their projects with realistic timescales for completion. Customers are growing increasingly wary as a result of well-publicised delays on certain landmark projects,' says Mohammed. 'Developers should approach the authorities early on and involve them in the planning and design process. This will save headaches later on and increase the likelihood that all utility services, for example, will be available on time.'

Master developers should also put in place a clear contractual framework for each project. Ensuring a clear understanding between master and sub-developers is essential if a developer wants to maintain its reputation. 'When acting as a master developer, firms need to put strong safeguards into contracts for the sale of plots within the project for construction by the sub-developer. A lot of speculative buying takes place and the end result is that the master developer ends up with a half-completed development, with certain sub-developers selling on quickly at a profit rather than completing construction. The reputation of the master developer is damaged and the firm has to deal with a set of [sub]developers that it had not originally contracted,' says Mohammed.

Increased invsetment

But despite the potential pitfalls for developers, the new laws are likely to have a positive and long-lasting impact on the market. '[These] laws are likely to increase investment,' says Mohammed. 'In Bahrain, the relaxation of foreign ownership restrictions has attracted individual expatriates and foreign investors and developers. Bahrain and Oman have both enacted fairly liberal laws on foreign ownership, which provide wide scope for more and more areas to be designated for foreign ownership. I doubt that there is a need for any more relaxation.'

If the new laws prove to be successful, they could become a blueprint for neighbouring states. 'We can expect to see other states, such as Qatar, eventually following suit, although they may prefer the UAE model of granting foreigners long lease rights or development rights rather than outright ownership,' says Mohammed.