As one of the fastest-growing cities in the world, Dubai has increasingly become one of the biggest destinations for international investors. As a result, in the past decade, the real estate market in Dubai has witnessed a substantial increase in demand and supply, outpacing major international cities such as London, Berlin, Geneva, Paris, and New York.
Dubai’s real estate market continues to break records in terms of sale transactions, with the first half of 2022 recording the best performance ever, totaling over 43,000 transactions worth AED 115 billion. The third quarter of 2022 has also hit an all-time high for quarterly sales in the Dubai real estate market, totaling over 25,500 transactions, marking an increase of 14% QoQ and 60% YoY. Furthermore, August was the highest-performing month in the last 15 years, as the market recorded AED 24.3 billion in investment through 9,720 sale transactions. This year has also witnessed some of the largest property transactions ever made in the UAE’s history.
Apart from its fast-paced economy, ever-growing skyline, high quality of life, and high return on investment (ROI), the relaxed laws and government initiatives for both local and foreign investors and buyers have further enhanced the interest in Dubai’s real estate market. The main governmental initiatives driving the real estate market in Dubai are as follows:
Tax-Free Investment in Dubai
For residential property buyers, a key tax advantage in Dubai is that VAT is generally not charged on the property price. The first supply of a new residential building within three years of completion is normally zero-rated; subsequent residential supplies are generally exempt.
Taxable sales of commercial property, including offices, shops and warehouses, are generally subject to 5% VAT. The treatment depends on the property classification and transaction: a qualifying transfer of a property-rental business may fall outside the scope of VAT. A VAT-registered business buyer may recover input VAT where the recovery conditions are met. Budget separately for transfer fees, service charges and VAT on related services. Hotel and serviced accommodation can have different VAT treatment.
Separately from VAT, Dubai property sales generally carry a DLD registration fee of 4% of the sale value; confirm the agreed allocation and any additional transaction fees. In addition, a monthly housing fee (also known as municipality tax) must be paid, which will be passed on to the tenant if the property is rented.
Visa initiatives
The new visa reforms announced by the UAE government have caused a significant boost in Dubai’s real estate market. The introduction of the 10-year Golden Visa has spurred investment into Dubai’s real estate, providing residents with a solid reason to invest in UAE long term and allowing non-residents to make the country their second home. Golden Visa holders can remain outside the UAE for more than six months without losing residency on that ground, while the visa remains valid and its conditions continue to be met.
A qualifying property investment of at least AED 2 million can support a 10-year Golden Visa application. The route includes eligible off-plan purchases from approved local developers, as well as qualifying completed properties. For an off-plan purchase on a payment plan, confirm the accepted payment stage and required purchase, registration and payment evidence with the competent authority before relying on eligibility. A developeru{2019}s instalment percentage alone does not confirm approval.
Several other options are available to secure residency permits in the UAE, including a Self-Sponsored Remote Work Visa, Green Visa, Retirement Visa, Freelance Visa, and Silver Visa.
Nationality for selected expatriates
Recently, the UAE Government has approved amendments to the citizenship law, allowing investors, professionals, special talents, and their families to acquire Emirati nationality under certain conditions. This decision aims to strengthen the country’s economy in the long run, boosting the demand for real estate.
100% foreign ownership for “onshore” companies
Historically, onshore companies – incorporated under the UAE Commercial Companies Law (CCL) – have required a minimum of 51% held by a local shareholder. The 2018 Foreign Direct Investment Law partially relaxed this regime.
In 2021, the UAE CCL was amended to permit 100% foreign ownership for onshore companies. According to this law, there is no need to have a UAE national as a majority shareholder in onshore companies, nor will the company need a UAE national or local company as its registered agent. The new law also allows a Limited Liability Company (LLC) to have a sole owner or multiple shareholders. This law has been hailed as a game-changer for international foreign investments.
REST launch – Enhancing the transparency
In 2018, as part of the Dubai 10X initiative, DLD launched a Real Estate Self-Transaction (REST). REST platform enables the complete digitalization of real estate transactions, facilitating quicker and more efficient means of processing real estate transactions. This initiative aims to increase the transparency of the real estate market. It will eventually reduce the cost and time required to perform those transactions by eliminating paper documents and reducing brokerage procedures.
The REST launch was made in the context of the UAE government announcing plans to permit 100% foreign ownership of companies in certain sectors. The change has encouraged new foreign direct investment inflows and has given investors greater certainty.
New reporting requirements for real estate transactions
In August 2022, the UAE government introduced new reporting requirements for certain (cash and virtual currency-related) real estate transactions, increasing transparency and fighting against money laundering and financing terrorism. According to the new directive, all real estate agents, brokers, and law firms are required to file reports to the Financial Intelligence Unit on the purchase and sale transactions of freehold properties that involve the following three methods of payment:
- Single or multiple cash payments equal to or above AED 55,000, either as the entirety or a portion of the property’s value.
- The payment method involves using a virtual asset for either a portion or the entire property value.
- Either part or the entire amount of the funds used in the transaction were derived from a virtual asset.
This change is expected to enhance the UAE’s ability to protect its real estate market from the investment of illicit funds and provide greater confidence to authentic investors looking to invest in the country’s growing real estate market. This, in turn, will result in the continued growth of the UAE’s real estate market.
Real estate marketing rules tightened.
To achieve the highest level of transparency in purchasing and selling properties in Dubai, the DLD has updated its requirements for advertising and marketing properties. Starting from October 2022, only three permits will be issued to promote or list each property. This means a maximum of three agents/brokers can take up property marketing. This eliminates all possibilities of multiple listings, over-selling, or mis-selling through ads that promise more than they deliver. Moreover, once the property is sold, all marketing and advertising materials related to this property must be immediately taken down. Additionally, an agent cannot trade using an expired license.
This change creates a more transparent real estate environment for sellers where advertised prices for properties are correct. It also ensures greater transparency for real estate agents/brokers where fairer competition is facilitated. Therefore, guaranteeing strong compliance measures helps to instill a highly trustworthy and respectable real estate environment within Dubai.
Property investment funds law
Given the increased activity in Dubai’s real estate market, the government has seized the opportunity to provide further assurance to international investors and issue a new law to incentivize real estate investments in the emirate. Accordingly, the DLD has established the Property Investment Funds Law to strengthen Dubai’s position as a “global destination for real estate investment” and to provide incentives to attract more funds into the emirate.
According to the new law, registered UAE funds will be able to purchase and own real estate assets in those areas in Dubai that have restrictions on foreign ownership (with such areas to be determined by a special committee that will be established pursuant to the Property Investment Funds Law). This law applies to all property investment funds licensed and regulated by the competent government authorities and the real estate properties in Dubai.
With the help of this law, investors should be able to enter the market more transparently. Moreover, Dubai will continue to rank highest among wealthy investors, especially as the minimum investment for a REIF is AED 180 million. It also delivers three key advantages for eligible funds in terms of cost, flexibility, and simplicity.
Rise of the loan-to-value (LTV)
In 2020, the Central Bank of the UAE issued a decree allowing UAE banks to increase the loan-to-value (LTV) for first-time buyers by 5% for both expats and UAE nationals. As a result, expats can borrow up to 80% of their property purchase price and UAE nationals up to 85%. In addition, some banks even allow buyers to include some of the fees associated with buying within the loan. This takes the maximum LTV up to 84.8% for expats and 90.1% for UAE nationals. However, for off-plan properties, the maximum is 50% of the property’s value, regardless of the buyer’s nationality.
This change reduces the down payment required, which is generally the biggest challenge for most. The down payment required by expats and UAE nationals is now 20% and 15%, respectively.
Outlook
Given the governmental laws and initiatives, it is easy to see why Dubai has become such a desirable location for investors and buyers. The different governmental initiatives have significantly boosted Dubai’s real estate market, supported its growth, and enhanced its transparency. Consequently, Dubai has ranked first in the world for improving real estate transparency in the 2020-2022 period, followed by Abu Dhabi, France, the Netherlands, the US, Germany, and India. However, the true potential of the governmental initiatives in the real estate sector remains to be seen.
