Dubai issues decree to boost real estate investment funds

Introduction

Real estate investment funds (“REIFs”) are investment funds created to invest in real estate and real estate assets. REIFs enable individual investors to make multiple high-quality real estate investments at a lower cost, and allow them to diversify their real estate portfolio, thereby limiting their exposure to market risks.

Dubai has successfully maintained its position as one of the most attractive destinations for real estate investments. To further drive the growth of the real estate sector, Dubai issued Decree No. 22 of 2022 On the Approval of Privileges to the Real Estate Investment Funds in the Emirate of Dubai (“Decree”) in July 2022. The Decree was issued with the intention to attract, promote and incentivise the establishment of REIFs in the Emirate of Dubai by providing them with certain privileges to enhance the position of Dubai as an international destination for property investment.

Overview of the Decree

Scope and applicability

The Decree is applicable to all REIFs that are regulated and licensed by a competent entity in Dubai, which includes Special Development Zones (“SDZ”) and Free Zones in Dubai, including the Dubai International Financial Centre (“مركز دبي المالي العالمي”), and to all real estate in Dubai, its SDZ, and its Free Zones excluding DIFC.

The Decree lays down (1) the registration requirements for REIFs, (2) the privileges that they can avail, (3) the formation of a Real Estate Investment Funds Committee, and (4) the registration of REIF-owned real estate when given as in-kind contribution.

Registration and conditions 

To avail the privileges given in the Decree, REIFs must be registered in the Real Estate Investment Funds Register (“Register”). To be registered in the Register, the REIFs must meet the following four conditions:

1. The REIF must hold a valid license that is issued by the competent entity;
2. The value of the real estate assets owned by the REIF must be at least one-hundred and eighty million dirhams (AED 180,000,000);
3. At the time of submitting the registration application, the REIF shall not be suspended from trading its shares in the Dubai financial market; and
4. It must pay a fee of ten thousand dirhams (AED 10,000) to the Dubai Land Department (“Department”) for registration.

However, REIFs would be struck off the Register, in any of the following cases:

1. They do not meet any of the conditions they are required to meet prior to their registration;
2. A final judgment declares them bankrupt;
3. A final judgment restricts their activities; and
4. They are dissolved and their assets are liquidated.

Privileges

The Decree entitles registered REIFs to two privileges:

1. REIFs will have the right to own real estate in areas where ownership is allowed to non-UAE nationals (“Designated Areas”). Further, they can have absolute ownership over real estate located outside the Designated Areas with no time restriction, or they can have usufructuary or lease rights up to ninety-nine (99) years.

The areas and real estate falling outside the Designated Areas would be determined by the Real Estate Investment Funds Committee (“Committee”). A REIF cannot waive its ownership right of real estate located outside the Designated Areas unless it obtains a preliminary approval from the Committee to do so, and any cessation made without the approval would be deemed to be void.

2. The Decree allows REIFs to enjoy concessions on registration fee for disposition of real estate. A fee equal to 2% of the market value of the real estate will be collected if the REIF purchases it and registers it in its own name, or registers it with the right to usufruct or long-term lease. Moreover, a fee equal to 4% of the real estate’s market value will be collected if the REIF sells the real estate to another party and registers it in the name of that third-party, or assigns the usufruct or long-term lease right.

It must be noted that DIFC has the power to provide additional privileges and lay down further conditions for the REIFs operating within its jurisdiction.

REIFs are entitled to these privileges from the date of their registration and can avail these privileges throughout the duration of their registration. Their entitlement to the privileges will be suspended if they are struck off the Register. However, this would not invalidate any privilege enjoyed by the REIF prior to it being struck-off from the Register.

Real Estate Investment Funds Committee

The Committee is entrusted with the responsibility of determining the areas and real estate outside the Designated Area in which non-UAE nationals may acquire freehold ownership without time restrictions, or usufruct or lease rights up to ninety-nine (99) years. While determining the Designated Areas, the Committee will verify that:

1. The market value of the real estate to be owned is at least fifty million dirhams (AED 50,000,000);
2. The real estate to be owned generates a return on investment, as per the criteria prescribed by the Department;
3. The provisions of the Dubai Decree No. 4/2010 Concerning the Regulation of Transfer of Ownership of Industrial and Commercial Lands Granted in the Emirate of Dubai are complied with; and
4. Any other requirements that are determined in the resolution(s) passed by the Director General of the Department are met.

Registration of in-kind contribution of real estate

The Decree allows the founders of a REIF to make an in-kind contribution of real estate to the REIF, and such real estate will be registered in the name of the REIF, and a title deed will be issued by the Department to the REIF to this effect. The transfer of the real estate ownership from the founder(s) to the REIF will be subject to a fee of fifty-thousand dirhams (AED 50,000).

خاتمة

Dubai’s infrastructure, absence of property tax and income tax, and visa benefits for property owners have made Dubai’s real estate market attractive to investors across the globe. With the Decree allowing REIFs to purchase real estate outside the Designated Areas and paying a lower fee against the registration of the real estate, it is expected that there will be an increased influx of foreign investment in Dubai giving its economy a further boost.

For more details, please contact:

مانيش نارايان Partner manish@galadarilaw.com