INTRODUCTION
In his capacity as the Ruler of Dubai, His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE, issued Decree No. (22) of 2022, introducing incentives for property investment funds in Dubai (“Decree”). The Decree came into effect from the date of its publication in the Official Gazette (22 July 2022). In this article, we discuss the key features of the Decree and how its provisions seek to encourage real estate fund investments in Dubai.
KEY FEATURES
Objective: The press release issued by the Government of Dubai states that, ‘the Decree aims to enhance Dubai’s status as a global real estate investment destination and attract global property investment funds to the emirate’.
Applicability:
- Funds: All real estate investment funds, licensed and regulated to operate in the Emirate of Dubai, including development zones and free zones (including the Dubai International Financial Centre) in Dubai;
- Properties: All properties in the Emirate of Dubai, including properties located onshore, in special development zones and free zones, except for properties located within the Dubai International Financial Centre.
A key point on the applicability of the Decree is that while it applies to funds registered with the Dubai International Financial Centre, the Decree does not apply to properties located in the Dubai International Financial Centre.
Principal provisions:
- A ‘Real Estate Investment Funds’ Register (“Register”) is proposed to be created within the Dubai Land Department for the registration of all funds that are eligible to avail incentives under the Decree.
- A real estate investment fund must fulfil inter alia the following criteria for registration in the Register:
- It must be licensed with a competent authority (and also, most likely, the Dubai Financial Market Authority);
- The value of the real estate assets of the fund at the time of applying for registration in the Register should be at least AED 180,000,000 (one hundred and eighty million dirhams);
- Its shares should not be suspended from trading in the Emirate’s financial markets.
- A fee of AED 10,000 (ten thousand dirhams) shall be payable to the Dubai Land Department for registration of the fund.
- The Dubai Land Department will periodically audit the registered funds to ensure that they continue to fulfil the conditions for maintaining registration. For instance, they will require each fund to submit audited annual financial reports issued by an external auditor to verify that the value of the real estate assets has not fallen below AED 180,000,000.
- The registered funds will be entitled to acquire properties in the areas which are designated for foreign ownership (“Foreign Ownership Areas”). They will also be entitled to acquire ownership rights, usufruct rights and leasehold rights (not exceeding 99 years) in other areas, which will be designated by a new committee to be established pursuant to the Decree.
- This new committee will be called the Real Estate Investment Funds Commission (“Commission”). While identifying the properties in non-Foreign Ownership Areas to be made available for investment to the registered funds, the Commission will take into consideration the following:
- The market price of such properties shall not be less than AED 50,000,000 (fifty million dirhams);
- The property shall generate a return of investment as per standards designated by the Dubai Land Department;
- Provisions of Dubai Decree No. (4) of 2010 in case the property under consideration is a grant.
- Transfer or resale of any property (or any interest therein) as identified by the Commission in a non-Foreign Ownership Area acquired by the registered fund will require prior consent of the Commission.
- The Decree provides certain concessions to registered funds in the payment of Dubai Land Department transfer fees. In case of a purchase of any property or acquisition of any usufruct rights or leasehold right by the registered fund in its name, the Department shall apply a fee of 2% of the market value of the property, which shall be collected equally from the fund and the seller/lessor (as applicable), unless otherwise agreed.
- The concession in payment of Dubai Land Department transfer fees will apply to the transfer of properties of the registered fund and not shares or units held by shareholders/unitholders in the registered fund.
- In addition to the incentives set out in this Decree, the DIFC President is authorised to grant additional privileges and conditions to registered funds operating in the DIFC jurisdiction.
- The ‘founders’ of the fund can make contributions ‘in kind’ of real estate assets to the fund and the Dubai Land Department will then reflect the fund as the owner of such property and issue a title deed in its name. The Dubai Land Department shall apply a nominal fee of AED 50,000 (fifty thousand dirhams) for transferring the title of each property owned by a founder to the fund instead of the standard 4% transfer fee.
- The Dubai Land Department will appoint an assessor/valuer approved by the Real Estate Regulatory Agency for the valuation of the real estate assets to be introduced into the registered fund and the assessor/valuer will conduct such valuation in accordance with the approved standards of the Dubai Land Department.
KEY CONSIDERATIONS
While we await decisions of the Director General of the Dubai Land Department to provide more guidance and clarity on the implementation of the Decree, below are certain considerations to take into account when considering whether to register a fund with the Register and avail benefits under the Decree:
- The Decree does not clarify which authority the real investment funds must be licensed with. It is likely that each fund would need to also be registered with the Dubai Financial Markets possibly without the need to be listed. However, further clarification from the Dubai Land Department is required in this regard.
- It appears that even entities that are not listed for trading in financial markets can register with the Dubai Land Department to avail the incentives under this Decree.
- It is unclear what would be the status of the properties acquired by funds with non-GCC national shareholders in non-Foreign Ownership Areas in case the fund is de-registered in the future. The Decree does not specify whether the properties would be resumed by the Commission or continue to vest in the de-registered fund.
- The disposition of any property acquired by the registered fund in a non-Foreign Ownership Area requires prior permission of the Commission. It is not clear what such process may involve or the related costs for approval. The initial list of non-Foreign Ownership Areas where a registered fund may acquire property has not yet been issued by the Dubai Land Department.
- Concessions in payment of transfer fees only apply to acquisition of properties by the fund and not disposal.
- It is unclear whether the benefit of concession in transfer fees upon the introduction of property (at a fee of AED 50,000) or the acquisition of property (2% of market value of the property) would apply where the property is introduced in or acquired by a subsidiary of the fund and not directly by the fund.
- It is not clear whether Free Zone authorities which maintain their own land registration system, like the Jebel Ali Free Zone Authority, would provide the same concessions in the payment of transfer fees in relation to the contribution to or acquisition of properties by the registered fund pursuant to the Decree.
CONCLUSION
The Decree is a significant step in increasing the attraction of Dubai to real estate investment funds, as part of the multibillion dollar global property fund market.
One of the most significant features of the Decree is the opening up of non-Foreign Ownership Areas to property funds irrespective of non-GCC national ownership of such funds i.e. even a 100% foreign owned fund could potentially own property in a non–Foreign Ownership Area provided it meets the criteria under the Decree. This opens up new opportunities for investment in Dubai.
Considering the implementation of the Decree is at an early stage, businesses and investors should seek legal advice when considering incorporating and operating a fund to ensure that the fund satisfies all due legal and authority requirements to avail of anticipated benefits under the Decree and without loss of registration status.
Hadef & Partners is a full service law firm with 40 years’ experience in helping clients navigate the legal environment when doing business in the UAE. Please contact Ashraf Sayed for advice on real estate investment structuring in light of the Decree.