INTRODUCTION

Dubai’s ruler is Sheikh Mohammed bin Rashid Al Maktoum. He’s the VP and PM of the UAE. As Ruler of Dubai, he approved Decree No. (22) of 2022, which benefited Dubai’s property investment funds (“Decree”). When the Decree was published, it became law (22 July 2022). This article discusses the Decree’s key provisions and how its guidelines aim to attract real estate funds to Dubai.

Features

The Government of Dubai said the Decree aims to “enhance Dubai’s status as a global real estate investment destination” and “attract global real estate investment funds.”

Applicability:

1. All licenced and regulated real estate investment funds in Dubai, including development zones and free zones (such as the Dubai International Financial Centre).

2. All Dubai properties besides DIFC. Land, special development zones, and free zones.

The Decree exclusively affects Dubai International Financial Centre-registered funds. It doesn’t apply to DIFC.

Articles:

1. Dubai Land Department plans to create a “Real Estate Investment Funds” (REIF) Register to track funds eligible for Decree benefits.

2. A REIF must meet the following standards to be on the Register:
   
   1. It must be licenced (presumably by the Dubai Financial Market Authority).
   2. The fund’s properties must be worth at least AED 180,000,000 to be listed (180,000,000 dirhams). 
   3. The trade of REIF shares on the financial markets of the Emirate shouldn’t be suspended or halted.

3. Dubai Land Department charges AED 10,000 to register the fund (ten thousand dirhams).

4. Dubai Land Department checks registered funds periodically to ensure they still meet regulations. They’ll require each fund to submit audited annual financial reports from an outside auditor to assure real estate assets haven’t plummeted below AED 180,000,000.

5. The funds can buy property where foreign ownership is authorised (“Foreign Ownership Areas”). They will also gain ownership, use, and leasehold rights (for no more than 99 years) in additional regions determined by a new Decree-created body.

6. This new group will be called the REIF Commission (“Commission”). The Commission will consider the following when selecting properties in non-foreign ownership areas for registered funds:

1. These homes can’t sell below AED 50,000,000. (Fifty million dirhams). 
2. The ROI must meet Dubai Land Department criteria. 
3. If you were handed property, you must observe Dubai Decree No. 4 of 2010.

7. Before a registered fund’s non-Foreign Ownership Area property or interest can be transferred or sold, the Commission must agree.

8. The Decree helps registered funds pay Dubai Land Department transfer costs. If a registered fund buys a property or receives usufruct rights or a leasehold right in its name, the Department will collect a 2% fee, which will be shared between the fund and the seller or lessor unless otherwise agreed.

9. Discounted Dubai Land Department transfer fees only apply to registered fund properties. It won’t apply to the transfer of registered fund shares or units.

10. The DIFC President can give registered funds in DIFC jurisdiction extra rights and rules.

11. “Founders” can donate real estate “in kind” Dubai Land Department will list the fund as the property’s owner and grant it a title deed. Instead of 4%, the Dubai Land Department will levy AED 50,000 to transfer each founder’s property to the fund.

12. Dubai Land Department will appoint a Real Estate Regulatory Agency-approved assessor or valuer to determine the fund’s value. The assessor determines the property’s value using Dubai Land Department guidelines.

Considerations

While we wait for the Dubai Land Department to implement the Decree, here are some items to consider while determining whether to form a fund and take advantage of the Decree:

1. The Decree doesn’t say who issues actual investment fund licences. Any fund may need to be registered with Dubai Financial Markets even if not listed. Dubai Land Department must clarify.

2. Even if an entity isn’t listed on financial markets, it can sign up with the Dubai Land Department to obtain the Decree’s benefits.

3. It’s unclear what would happen to non-Foreign Ownership Area properties bought by funds with non-GCC national shareholders if DLD deregistered the fund. The Decree doesn’t clarify whether the parcels would be returned to the Commission or the deregistered fund.

4. If a registered fund acquires property in a non-Foreign Ownership Area and intends to sell it, it must receive Commission clearance. The clearance process and cost are unclear. Dubai Land Department hasn’t released the first list of non-foreign ownership areas where registered funds can acquire property.

5. When buying, the fund pays fewer transfer fees than when selling.

6. It’s unclear if lesser transfer fees when a property is brought into the fund (for AED 50,000) or when a property is bought (for 2% of the property’s market value) would apply when the property is brought into or purchased through a fund subsidiary instead of directly by the fund.

7. It’s unclear if Free Zone agencies like the Jebel Ali Free Zone Authority, which have its land registration system, would offer similar reductions on transfer fees for properties gifted to or bought by the registered fund.

CONCLUSION

The Decree makes Dubai more attractive to real estate investment funds, a multibillion-dollar global market.

The Decree allows property funds controlled by non-GCC citizens to own property in areas not open to foreign ownership. If a 100% foreign-owned fund meets the Decree’s standards, it can own property in a non-Foreign Ownership Area. Dubai is more investor-friendly.

Businesses and investors who want to set up and administer a fund should consult a lawyer to ensure it meets all legal and authority requirements to take advantage of the Decree’s benefits without losing its registered status.