Swift Legislation Changes in the UAE for Investors

  • 6 months ago
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The real estate sector of Dubai continues to grow, having recorded record-high figures in sales transactions during the first half of 2022. To further fortify the interests of prospective investors, a new law (Dubai Decree No. 22 of 2022) was passed by the Ruler of Dubai, Sheikh Mohammed Bin Rashid Al Maktoum, which provides easement and lets investors set up funds for investment. The objective behind setting up said law is to increase the supply of investment and cash flow by incentivizing the property sector, giving leverage, using better regulations, and adding greater transparency. In the following article, we will be sharing the defining characteristics of the new law put in place, its perks, and what effects it would have on the local real estate market.

Outline of the Dubai Decree No. 22/2022

As per the announcement of the Dubai Media Office, Decree No. 22 of 2022, made public in July 2022, defines all the real estate investment funds regulated and licensed by the respective authorities, including the Dubai International Financial Center (DIFC) and the Securities and Commodities Authority. With that said, a new register has been established with the Dubai Land Department (DLD), which is in charge of granting registered funds specific rights to provide convenience during their investments in the Emirate.

The major update that the law provides is with the registration mechanism that would now allow registered UAE funds to be able to acquire and own Real Estate Assets in areas in Dubai that had limitations on foreign ownership. Having said that, the fund will not be allowed to sell those Real Estate Assets in the districts restricted for foreign ownership without the preliminary approval of the special committee.

Details on the Law are as follows:

Apart from the property funds, the new decree covers the whole Real Estate Market of Dubai including all Special Development Zones and Freehold Areas, excluding the DIFC.

For a fund to be entered into the Register, the following requirements need to be taken into account and fulfilled:

  1. The fund is required to have a valid license from the competent authority that governs it.
  2. The assets that are owned by the fund should be valued at AED 180M (USD 49M) at the time of submission of the registration application.
  3. The fund should not be on suspension from trading its shares in Dubai’s Financial Markets at the time of the application submission for registration.
  4. The registration fee is to be paid to the Dubai Economy and Tourism Department (DED) which amounts to AED 10K (USD 2.7K).

Once the application is submitted, the details are then verified by the DLD whether the fund meets the requirements and conditions with the aid of a valuation specialist that is accredited by the Real Estate Regulatory Agency (RERA); thus, further enhancing the transparency of the entire procedure.

Upon registration, the said registered real estate fund will be allowed to purchase freehold, usufruct, and long-term lease rights to Areas in Dubai that are generally prohibited for foreign ownership.

It should be noted that the above requirements and conditions are necessary and if not met fully, could get the investment fund suspended; dissolution and liquidation of the assets, bankruptcy by a final judgment or restriction of the fund’s activities by a final judgment.

There are certain prerequisites in place regarding Property Acquisition in Areas not Designated for Foreign Ownership.

For non-freehold area properties, the committee takes into account the following details for Investors:

  1. The estimated market value of said property is at least AED 50M (USD 13.6M).
  2. The investment yield of the property in question should be by the DLD Standards.
  3. In case the property motion is granted, it should be in line with the provisions of Decree No. (25) of 2022.
  4. Any other considerations determined by the DLD would be taken into account.

Notably, in July of 2022, The Vice President and Ruler of The Emirate of Dubai, Sheikh Mohammed Bin Rashid, regulated the usage of commercial property in Dubai by granting a Musataha for the development of Real Estate Projects through a new law that was introduced. Said agreement can be extended for a maximum of 50 years.

Inevitable Property Disposition Fee

The purchase, sale, usufruct/long-term lease, and waiver of rights/benefits of long-term leases of Real Estate Properties registered by the Real Estate Fund are subject to the following list of DLD Fees:

  1. A 2% registration fee applies on purchases (Whereby a Real Estate Investment Fund acquires a property asset and gets it registered under its name)
  2. A 4% registration fee applies on sales (Whereby a Real Estate Investment Fund sells a property asset within its portfolio and gets it registered under the third party’s name)
  3. A 2% registration fee applies on usufruct/long-term leases (Whereby a Real Estate Investment Fund registers the rights of usufruct/long-term leases)
  4. A 4% registration fee applies on waivers of rights/benefits of long-term leases

The application of these fees is exclusive to the disposition of property assets and not to the disposition of property shares by the shareholders of the fund.

In-Kind Contribution of Capital for Real Estate Properties

At the time when a Real Estate Investment Fund is set up, the founders of the said fund have the opportunity to provide a property owned as an ‘in-kind contribution’ to the Fund Capital and get it registered. It will be mentioned in the Real Estate Certificate by the DLD that the owner of the property is a Real Estate Investment Fund under establishment.

As the fund establishment gets completed and the required license is issued by the relevant, competent authority, amendments to the certificate will be made by the DLD, which will mark a fund being the owner of the property. It is to be noted that a fee of AED 50K (USD 13.6K) fee applies to the transfer of ownership of every property that is owned by the founder of the Real Estate Investment Fund rather than the standard 4% for investors. Subsequently, the title deed that will be issued by the DLD will be in the fund’s name.

List of benefits of the Property Investment Funds Law

Without a shadow of a doubt, this law that was recently decreed will attract numerous Real Estate Funds to Dubai, which in turn is going to be extremely beneficial in terms of income generation and in regards to the development of areas that were previously undeveloped. In addition to that, it will be opening up a whole new market for retail investors who in particular have a possibility of purchasing properties in areas that were previously designated as non-freehold.

It is to be noted that Investment Funds are eligible to seek exemption from the Corporate Tax System, which is going to be effective from the year 2023. The said procedure is to be executed through the Federal Tax Authority (FTA), which in turn has the responsibility for authorizing the exemptions for Investment Funds that meet the requirements and conditions.

According to Sameer Lakhani, the Managing Director of The Commercial Lender; Global Capital Partners:

The formation of property funds is a necessity and essential to the overall development and maturity of not only the Property Sector of the UAE, but also the Capital Markets. Through attracting Foreign Asset Managers and Global Institutional Investors, an environment is to be created that is beneficial for all, promotes liquidity in regards to the development of Specialised Commercial Property Segments and provides access to both the institutional and retail investors.

Simultaneously, as The Emirate of Dubai continually breaks records regarding Foreign Direct Investment (FDI), the latest law decreed will bring in added foreign capital by investors and investment leading to a multiplier impact beneficial for the whole economy in general.

Not to forget that among the incentives and benefits that are offered to funds like these, which heavily invest in local Commercial Real Estate, the demand is likely to grow much stronger and at a high pace, in turn, price levels will end up subsequently benefitting the retail investors.

Ways In Which We Can Serve You Better!

ANW Real Estate is an award-winning Real Estate Agency that has a considerable portfolio in the UAE, especially in Dubai. We are working in the digital age with powerful ideas and proven sales acceleration providing amazing services when it comes to your Real Estate Investments and ensuring that every transaction of yours is smooth and successful through our easy and flexible application processes. Furthermore, our Real Estate Experts guide you every step of the way while helping you choose the best possible property options to add to your portfolio, increasing its potential while helping you manage it all seamlessly. During the acquisition process of a property, we guide and help you out in every stage of the process while ensuring that you get the best deal possible only through us and our vast network!

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