DIFC-based REITs - Status quo and Future Developments

Since the enactment of the Dubai International Financial Centre`s (DIFC) pertinent REIT regulations in 2006 the DIFC has allowed the creation of REIT trusts or corporations within its perimeter. As DIFC-based property funds and REITs are now considerably gaining in investor`s interest, it is time to take a closer look at the determining factors and available options.

Dubai`s DIFC has established itself as the regions`s prime financial jurisdiction, offering a robust common law legal framework and thus becoming the domicile of choice for many property fund structures. As per the DIFC`s regulations, REIT entities are a subset of property funds, defined by the DFSA`s collective investment rules and characterised by the following features:

• Requirement to distribute 80% of the annual income
• Diversified real estate investment
• Closed-ended structure (no redemption)
• Property under development must not exceed 30% of the fund`s NAV
• Limited leverage (max 50% of Gross Asset Value)
• Mandatory listing
• Fund manager must be regulated by the DFSA (or equivalent)
• Usage of corporate or trust fund structure possible.

It is only recently that REITs have gained traction in the region, with „Emirates REIT“ being the first of its kind to go public on Dubai`s NASDAQ marketplace in 2014. In early 2017, EmiratesNBD bank listed its ENBD REIT, just as the former also domiciled in Dubai`s International Financial Centre (DIFC).

Taxes, Fees, Regulations
With the absence of withholding or corporate tax in the UAE, a property investment through a REIT is to be considered neutral compared to a direct investment. Regarding the newly adopted Value Added Tax (5%), levied on the sale of commercial properties and rents, individual and corporate investors alike have the option to distribute the VAT amount incurred on the property acquisition over the property`s lifespan (10 years) by off-setting it on a yearly basis against invoiced output VAT on commercial rents or other output VAT from applicable revenue streams.

A transfer of title bears a pricetag of 4% of the acquisition price within the Emirate of Dubai. In order to prevent charges to be levied a second time on shareholder level, the Dubai Land Department has signed an agreement with NASDAQ Dubai, effectively relieving DFSA-regulated or NASDAQ Dubai-listed property funds from the requirement to charge transfer fees on unit (share) transfer.

As per the local property laws, districts and comprised buildings are generally categorised into designated (freehold) and non-designated areas, whereas within the latter only GCC nationals are allowed to acquire properties. It is noteworthy that REITs can be relieved from this restriction, effectively opening the door for foreign (Non-GCC) investors to acquire property anywhere in Dubai and other Emirates.

The complete article, initially published in the Spring issue of the „Family Office Magazine“, additionally examines peculiarities regarding performance measurement and management remuneration and is accessible under the following link:

https://www.property-blog-dubai.com/single-post/Dubai-DIFC-based-REITs-Status-quo-and-Future-Developments

The author`s blog property-blog-dubai.com covers subjects related to Dubai`s property market and its trends and influences from an institutional investor`s perspective.
The author has been actively engaged in the Dubai property market since 2005 and advises institutional investors pertaining to their overall investment strategy, ongoing asset management as well as the initiation and execution of property transactions.

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Christian Atzert
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This release was published on openPR.