Dubai, one of the world’s fastest-growing cities, has a thriving economy and an unrivalled property portfolio. Along with its luxury appeal, the Dubai real estate market also provides a higher return on investment (ROI) on properties than other major international cities, making it a popular choice among global investors.
After the long-awaited foreign ownership decree was passed in 2002, allowing non-UAE citizens to own property in Dubai, the city’s property market experienced a massive boom. It then enacted a new law in July 2022 to encourage the growth of real estate investment funds in the emirate.
Real estate investment remains one of the best ways to build wealth, and Dubai is now more profitable than ever, attracting investors from all over the world. Continue reading to find out if investing in Dubai property should be your next money move
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Understanding the Property Investment Funds Law
A real estate fund is a type of mutual fund that invests primarily in securities issued by publicly traded real estate companies. A real estate investment trust, on the other hand, invests directly in income-producing real estate and is traded like a stock.
On July 19 2022, Dubai’s ruler, Sheikh Mohammed bin Rashid Al-Maktoum, enacted a new law to encourage the growth of real estate investment funds in Dubai. According to WAM, the law grants certain privileges to real estate investment funds as part of efforts to position the emirate as a global destination for real estate investment.
According to the Dubai Media Office, Decree No. 22 of 2022 applies to all real estate investment funds that are regulated and licensed by the relevant authorities. The Dubai Land Department (the DLD) has established a new register that grants registered funds specific rights to facilitate their investments in the emirate.
The main difference is that the registration mechanism now allows registered UAE funds to acquire and own real estate assets in areas of Dubai where foreign ownership is restricted. The fund will not be permitted to sell property assets in districts restricted to foreign ownership without first obtaining preliminary approval from the special committee.
In order to register a fund in the register, you must meet the following requirements:
The fund is required to have a valid license from the appropriate authority.
When submitting the registration application, the fund’s property assets must be worth AED 180 million (USD 49M)
The fund must not be suspended from trading its shares in Dubai’s financial markets at the time the registration application is submitted.
The Dubai Economy and Tourism Department requires a registration fee of AED 10,000 (USD 2.7K).
As soon as you submit your application, the DLD will use a valuation specialist accredited by the Real Estate Regulatory Agency (RERA) to confirm that the fund meets the requirements. This step improves the overall transparency of the procedure.
As a result, registered property real estate funds will be able to purchase freehold, usufruct, and long-term lease rights in Dubai areas where foreign ownership is prohibited.
Conditions for Property Acquisition in Areas Not Designated for Foreign Ownership
The committee will take the following factors into account for properties located in non-freehold areas:
The property is worth at least AED 50 million in the market (USD 13.6M).
The property must have an investment yield that meets DLD standards.
If the property is granted, it will be in accordance with the terms of Decree No. (25) of 2022.
Other factors as determined by the DLD.
Sheikh Mohammed bin Rashid, Vice President and Ruler of Dubai, introduced a new law in July 2022 with the goal of regulating the use of commercial land in Dubai by granting Musataha to develop property projects. The contract can be extended for up to 50 years.
Fees for Property Dispositions
The real estate fund’s property purchase, sale, usufruct/long-term lease, and waiver of right/benefit of the long-term lease are subject to the DLD fees listed below:
Purchase – A 2% registration fee is charged when a real estate investment fund acquires a property asset and registers it in its name.
Sale – A 4% registration fee is charged when a real estate investment fund sells a property asset in its portfolio and registers it with third parties.
Usufruct / Long-term lease – 2% registration fee when a real estate investment fund registers the right of usufruct/long-term lease
Waiver / Benefit – A 4% registration fee is charged for the waiver of a right or benefit of a long-term lease.
These fees apply only to the disposition of property assets, not the disposition of property shares by fund shareholders.
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Benefits of the Property Investment Funds Law
The move comes as Dubai ramps up efforts to attract foreign investors, with real estate being one of the city’s focus sectors.
- The law encourages significant funds to invest in Dubai real estate and opens the UAE market to large capital infusions. The UAE has recently been identified as the preferred destination for millionaires looking to relocate. This initiative will further propel Dubai to the top of the list of wealthy investors.
- In addition, the new law would encourage investors and real estate funds to enter the market while increasing transparency and governance. It will help to regulate Dubai’s private development and free zones. As a result, as wealthy individuals flock to Dubai, this legislation opens up new opportunities for personal and professional relocation.
- By removing liquidity and asset management risks, real estate investment trusts should be able to attract 15% more investment while also supporting liquidity and market growth.
Why Invest in Dubai’s Real Estate Market?
The following are the factors that make Dubai’s property market appealing to international investors:
- Higher Annual Rental Yields
According to research conducted by the real-estate investment consulting firm Global Property Guide, the average yearly return on Dubai properties is 5.19%. Annual rental yields in New York (2.9%), London (2.7%), Singapore (2.5%), and Hong Kong (2.4%) are all significantly higher. With the rise in real estate values post-Covid, Dubai’s property market has much greater potential for even better returns. - Lower Property prices per square meter
Property prices per square meter are lower in Dubai than in other international cities. According to the Global Property Guide, the cost per square meter for a 120 square meter apartment in Dubai is US $5,918 compared to Hong Kong (US $28,570) and London (US$ 26,262), New York ($17,191), Geneva ($16,467), Tokyo ($16,322), Paris ($15,867), and Berlin ($7,325). It is also significantly cheaper to buy a home in Dubai than in other international cities. - Zero Property Tax
In Dubai, there is no tax on property purchases or income tax returns. According to the International Tax Competitiveness Index, the burden of the property tax rate is higher in other countries such as the United Kingdom (2.53%), France (1.70%), Greece (1.50%), Iceland (1.48%), and Italy (0.71%). - Safety
The UAE is one of the safest regions in the world, making it a popular place to invest. The UAE was ranked the world’s second safest country in 2021, according to Global Finance, compared to Germany (ranked 20th), Japan (ranked 22nd), the United Kingdom (ranked 38th), France (ranked 57th), and the United States (ranked 71st). In terms of Law and Order, the UAE was ranked 10th in the 2019 Gallup Global Law and Order Index. - Residency Visa
In order to make its real estate sector more appealing to global investors, the UAE government has implemented new visa laws linked to property investment that provides a fast track to residency (subject to certain conditions).
- Higher Annual Rental Yields
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