Tag: Funds

Dubai Decree No.22/2022 – On the Approval of the Privileges of the Property Investment Funds in the Emirate of Dubai

What’s happened?

On 22 July 2022 Dubai Decree No. 22/2022 (the Decree) came into force with the purpose of encouraging further investment in the Dubai real estate market via the provision of various incentives and privileges aimed towards real estate investment funds.

 

In this inBrief, we look at the various privileges that will now be afforded to property investment funds in order to attract further investment into Dubai’s already booming real estate market, as well as giving a brief overview of other key articles contained in the Dubai Decree.

 

Previous Position

Traditionally, property investment funds were afforded the same property rights as those that were granted to any other investment entity or foreign investor.

 

However, property investment funds were not commonly utilised as an investment vehicle in Dubai as any change in the fund’s shareholding attracted the standard Dubai Land Department transfer fee. Due to the everchanging nature of many property investment fund’s shareholding this was seen by investors as an onerous burden.

 

Further, as property investment funds are permitted to be established only under the Abu Dhabi Global Market’s (ADGM) REIT framework (the ADGM Fund Rules), the Dubai International Financial Centre’s Investment Trust Law framework (the DIFC Investment Trust and REITS Rules Instrument), and the Emirates Securities and Commodities Authority’s framework (Administrative Decision 6/R.T of 2019 Concerning Real Estate Investment Fund Controls), property investment funds were not seen as a cost-effective investment method due to the various restrictive regulations that applied to them.

 

Privileges

However, now a registered property investment fund will be able to avail of the following privileges:

 

  • property investment funds will have the right to own property, or the right of usufruct or rental for a duration that does not exceed (99) years in not only where UAE non-nationals are allowed to purchase, but, also in areas where ownership is typically not allowed to UAE non-nationals in the specific areas identified by the newly established Committee of Property Investment Funds;
  • the Decree explicitly states that no Dubai Land Department registration fees shall be imposed upon the property investment fund on the disposition of shares by the shareholders of the property investment fund. This, as noted above, was one of the main factors in discouraging investors from utilising property investment funds as a method for investment; and
  • Dubai Land Department registration fees applied for property purchased by the property investment fund have been reduced from the standard 4 percent of the market value of the property to 2 percent. Similarly, the applicable fee to register a usufruct right or long-term lease has also been reduced to a fee of 2 percent of the market value of the property.

 

Other Key Articles

Article 4: Establishment of the Register

The Dubai Land Department shall establish a register for the purposes of registration of property investment funds that meet the required criteria outlined below.

 

Article 5: Conditions and Procedures of Registration in the Register

In order for a property investment fund to be added to the register and thereby avail of the privileges set out above, the following criteria must be met:

 

  1. the property investment fund must be licensed by the relevant competent authority and hold a valid license;
  2. the value of the real estate assets owned by the property investment fund at the time of submission of its registration application must not be less than AED 180,000,000;
  3. the Property Investment Fund, upon submitting the application of registration in the Register, must not be suspended from trading its shares in the financial markets of the Emirate; and
  4. the relevant registration fee of AED 10,000 must be paid to the Dubai Land Department.

 

Article 6: Writing off from the Register

A property investment fund can be removed from the register upon the occurrence of a number of circumstances:

  1. it no longer meets the criteria specified in the Decree;
  2. it has been adjudged bankrupt;
  3. upon its dissolution and subsequent liquidation of its assets; and
  4. upon the restriction of its activities by virtue of a final judgement.

 

Article 7: Duration of entitlement to the privileges

A registered property investment fund is entitled to avail of the new privileges from its date of registration in the above-mentioned register until the date it is removed from same.

 

Article 9: Committee of Property Investment Funds

The responsibility for the identification of areas where ownership is not permitted to be held by UAE non-nationals and where property investment funds may now have the right of absolute ownership or usufruct or a long-term lease (the term of which does not exceed 99 years) will fall to the newly established Committee of Property Investment Funds (the Committee). In determining which such areas are suitable for investment and therefore available to property investment funds, the Committee shall consider:

  1. the market value of the real estate to be owned by the property investment fund shall not be less than AED 50,000,000;
  2. the real estate shall have an investment return according to the standards of the Dubai Land Department;
  3. the Provisions of Dubai Decree NO. 4/2010 (in the event that the property is, or forms part of, granted land); and
  4. any other considerations as determined by the Director General of the Dubai Land Department.

 

It should also be noted that property investment funds are required to obtain preliminary approval from the Committee in advance of disposing of its interest in any property acquired in the areas identified by the Committee.

 

Article 12: Privileges of property investment funds operating in the DIFC

Whilst this Decree applies equally to all property investment funds licensed to operate in Dubai (including those licensed in free zones or special development zones), the extent of the privileges that shall apply to those licensed in the DIFC will be at the discretion of the chairman of the DIFC.

 

Future

The two key changes ushered in by this Decree (the permitting of ownership of selected real estate within areas where it is typically prohibited for non-UAE nationals to own property and the removal of the Dubai Land Department registration fee upon a change of a property investment fund’s shareholding) are a significant development and an indication that property investment funds may now begin to have a greater impact on Dubai’s real estate market.

 

We anticipate that the changes that have now been introduced will relieve a number of burdens that would generally apply to property investment funds and encourage investors to re-evaluate property investment funds as a viable investment vehicle.

 

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If you require more detailed information, please do not hesitate to contact us. ■

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Implementation of passporting regime for domestic funds

On 11 March 2019, the Securities and Commodities Authority (SCA), the Dubai Financial Services Authority (DFSA) of the Dubai International Financial Centre (DIFC) and the Financial Services Regulatory Authority (FSRA) of the Abu Dhabi Global Market (ADGM) issued a joint press release announcing the enactment of legislation enabling the implementation of a “passporting” scheme to facilitate UAE-wide promotion of domestic funds.

 

The three regulators had previously signed a passporting agreement last November and a public consultation process followed in the ensuing months (covered in our inBrief of 30 January 2019).

 

The press release quotes several officials. Of particular note are the comments of the Chairman of the ADGM (who is also a Minister of State in the UAE Federal Cabinet):

 

There has been an accelerating demand and appetite for a greater variety of domestic funds in the UAE by the investment community. The new passporting regime enables investors to access growth opportunities with greater ease and efficiency. It will also bolster the UAE’s economic diversification strategy and attract more foreign direct investments and new investors and institutions to participate and support the growth of our economy and the development of the region.

 

Historically, the existence of three different regulatory regimes in the UAE has been an impediment to the growth of the market for funds since a fund approved by a particular regulator was only eligible for promotion within the relevant jurisdiction and not throughout the UAE. The passporting regime aims to change this.

 

The DFSA and ADGM have published amendments to the relevant rules and regulations implementing the passporting regime. The SCA’s regulations have not yet been published.

 

The Guidance to the DFSA’s Fund Protocol Rules (FPR) explains that:

 

The three UAE securities regulators: the SCA, the DFSA and the FSRA have agreed a “Protocol” regarding co-ordinated supervision of the marketing and selling of units of domestic funds within the UAE (State). The “Protocol” introduces a notification and registration process to enhance the monitoring and supervision of the financial services associated with the marketing and sale of units in domestic funds. The Protocol sets out a common regulatory framework which is to be implemented by each of the regulators. The Protocol is implemented in the DFSA Rulebook primarily through this module (FPR).

 

The passporting regime applies to both private and public domestic funds. It does not apply to foreign funds promoted in the UAE. Foreign funds and other types of securities promoted in the UAE remain subject to the applicable rules of the jurisdiction in which they are promoted.

 

Overall, this is a positive development that will reduce the regulatory burdens faced by domestic funds. ■

New promotion regime for domestic funds

In late November 2018, the Securities and Commodities Authority (SCA), the Dubai Financial Services Authority (DFSA) of the Dubai International Financial Centre (DIFC) and the Financial Services Regulatory Authority (FSRA) of the Abu Dhabi Global Market (ADGM) announced that they had reached agreement on facilitating the licensing of domestic funds by each authority for promotion across the UAE.

 

This is a potentially significant development. Historically, onshore legislation in the UAE has not been suitable for the formation of funds in the UAE. This has changed somewhat in light of the new UAE Commercial Companies Law that came into effect in 2015 and subsequent regulations issued by the SCA designed to encourage domestic fund formation.

 

The DIFC and the ADGM have more comprehensive legislation regarding funds and funds established in these jurisdictions are not subject to the 51% UAE ownership requirement. Hence, they are generally viewed as more attractive destinations to establish funds than the UAE proper. However, the existence of three different regulatory regimes in the UAE has been an impediment to the growth of funds set up in the DIFC or the ADGM. Most potential investors are not located in these financial free zones and a fund set up in one of these zones must comply with the regulatory regime of the SCA when marketing to investors in the UAE. This not only increases the regulatory burden because such funds have to comply with the laws of two different jurisdictions with very different rules but, as a practical matter, it means that a fund set up in the DIFC or the ADGM has been treated the same as a fund set up in foreign country as far as the SCA is concerned.

 

Hopefully, the new regime that will be developed under the agreement signed by the SCA, the DFSA and the FSRA will put an end to that. The press release states:

 

“The SCA, DFSA, and FSRA agreed on a common legislative framework in their respective jurisdictions, enabling them, to facilitate regulatory coordination amongst them in licensing domestic funds upon the adoption of the legislation. The three bodies confirmed that funds, which are licensed in accordance with the provisions of this agreement and the licensing regulations, may be promoted in or from the financial free zones in the UAE, in line with the provisions of the agreement and the licensing regulations. Under the terms of the agreement, a notification and registration facility will be established by each regulator, facilitating the promotion and sale of domestic funds, set up within the UAE, outside the financial free zones, or in either of the DIFC or ADGM, to potential investors situated anywhere in the UAE, and under a single licence.”

 

In other words, if the new regime works as advertised, a fund set up in the DIFC or the ADGM will be able to market and sell to investors throughout the UAE while only having to comply with the regulatory requirements of its jurisdiction of incorporation.

 

It is not yet clear how long it will take to implement the new regime contemplated by the agreement. The press release states that the SCA, DFSA, and the FSRA have agreed to establish common rules to implement the regulatory regime contemplated by the agreement but provides no estimated timetable for when such rules might be published. It further explains that the authorities will undertake a consultation process regarding the proposed new regime. Notwithstanding the tentative nature of these formal communications, it appears that some investment firms in the DIFC are already advertising this new capability.

 

This agreement represents a very encouraging development that could have a positive impact on making the UAE a much more attractive place to establish funds. ■