The number of listed real estate investment trusts (REITs) globally amounted to 865 at the end of 2021 with a combined market cap of approximately $2.5 trillion. By comparison, only two REITs are listed on Nasdaq Dubai: Emirates REIT and ENBD REIT.
REITs outperformed international stock and bonds over a decade (13 per cent vs 8.1 per cent between June 2009 to December 2021). It is highly likely that a number of real estate funds will be turning their attention to Dubai, and such funds often bring with them income generation, development of previously undeveloped areas, and open up a new market for retail investors, especially with the possibility to invest in the areas of Dubai previously designated as non-freehold.
The recent media coverage surrounding Dubai’s new decree law on real estate funds is well warranted. Initially, only the high-level overview was available, which summarized the key features and incentives, i.e., that certain real estate funds could now be regulated, and such funds would then be able to apply to be exempt from the soon to come into force corporate income tax regime in the UAE.
Timed to perfection
We delve deeper into the decree law (Dubai Decree No. 22/2022) and the benefits of such a development.
The decree is aimed at enhancing Dubai as a destination for real estate investment from all across the world. It covers all licensed real estate investment funds in Dubai (mainland and free zones inclusive, including those funds registered in the DIFC), and all properties in Dubai (mainland and free zones, except properties located in DIFC).
The President of the DIFC is granted the power to grant further privileges to funds registered and operating in the DIFC.
A register for real estate investment funds will be set up with and regularly audited by the Dubai Land Department for registration of eligible funds, and funds that are registered may avail themselves of the benefits/incentives under the decree.
Eligibility
Some of the eligibility criteria for funds are:
- The fund must be licensed with a competent authority (including the Securities and Commodities Authority, and the Dubai Financial Services Authority at the Dubai International Financial Centre),
- The value of real estates assets held should be no less than Dh180 million, and
- Its shares should not be suspended from trading on Dubai’s financial markets.
- The registration fee is relatively low, at Dh10,000. Audited reports will also be required to confirm ongoing satisfaction of eligibility criteria by the funds.
Disposition fees
Where the fund:
- Purchases property: registration fee of 2 per cent of its market value.
- Sells property from its portfolio: registration fee of 4 per cent of the market value.
- Registers usufruct or long-term lease: registration fee of 2 per cent.
- Waives the right or benefit of long-term lease: fee of 4 per cent.
Benefits
Transfers of shares/units in the fund by investors will not attract any fees relating to property transfer. Founders of the fund are allowed to contribute to the fund in kind, and contributions in the form property will attract a fee of Dh50,000 rather than the standard 4 per cent fee.
Arguably the most crucial development brought about by the decree is the ability for the funds to acquire rights in property located in areas previously restricted to local ownership (as approved by the Committee of Property Investment Funds). This greatly broadens the market for property investment in Dubai.
Seeking registration
Funds considering entry into the market should seek legal advice as this is regime is in the early stages of its development, and applicants will likely require establishing a dialogue with the competent authorities to ensure a smooth and successful application process.
