The DLD and the Dubai International Financial Centre Authority (“DIFCA”) entered into a Memorandum of Understanding (“MoU”) on 4 May 2017 which allows DIFC entities to purchase property and register real estate title with the DLD. Please click here for a previous alert which discusses this development.

A client handbook setting out the process and requirements for DIFC entities to purchase property and register title with the DLD will be published shortly by the DIFC. We understand that the handbook will include the following guidance.

Which entities? 

All companies, partnerships, foundations, Real Estate Investment Trusts (“REITs”) and other real estate funds licensed to undertake commercial activities in the DIFC, including intermediate special purpose vehicles established in the DIFC and owned by real estate funds, (“DIFC Establishments”) will be allowed to register title with the DLD, subject to the same ownership restrictions as other DLD approved entities.

Non real estate funds and special purpose companies (“SPCs”) will not be allowed to register title with the DLD.

How?

In order for a DIFC Establishment to be able to register title with the DLD, the DIFC Registrar of Companies (“ROC”) will first carry out all verification and due diligence required by the DLD to register title and will, subject to the payment of a fee, provide a ‘no objection certificate’ that the DLD will be able to rely on to register title. In light of this, the process of registering title should be quicker, as DIFC Establishments will not be required to provide Arabic translations of their constitutional documents to the DLD.

DIFC Establishments owning property registered with the DLD will be moved to a separate register controlled by the ROC to ensure a better oversight of the shareholdings of DIFC Establishments. It should be noted that the DLD will retain the right to take make the final determination as to the capacity of a DIFC Establishment to register title and it will be the DLD that will remain responsible for registering the relevant real estate interest and issuance of title.

Controlled transfers and fees

Direct or indirect transfer and issuance of interests in DIFC Establishments will have to be notified to the ROC and will be subject to (i) a no objection certificate from the DLD (“DLD NOC”) and (ii) the payment of the DLD registration fee (currently set at 4%) calculated on the value of the interest transferred or issued. The ROC will also be entitled to charge a fee for processing DLD NOC applications.

Transfers of interests where the beneficial ownership of the interest and percentage owned remain unchanged will be considered as gifts (hiba) triggering a reduced fee which is currently set at 0.125% of the value of the property.

No registration fee will be required in the event of issuance or transfer of shares or other interests in DIFC REITs regulated by the Dubai Financial Services Authority (“DFSA”) or listed on Nasdaq Dubai in accordance with the terms and conditions of the memorandum of understanding entered into between the DLD and Nasdaq Dubai on February 2017.

A DLD NOC and the related registration fee will not be required in the event of issuance of a new interest in other real estate funds or an intermediate special purpose vehicle established in the DIFC and owned by such real estate fund. However, when the interest is issued to a new interest-holder, a notification fee (currently of AED 10,000) must be paid to the DIFCA.

Conclusion

The powers granted by the MoU to the DIFCA go beyond any powers the DLD has previously granted to other freezone authorities in respect of title registration in Dubai. This is a major development in the real estate investment sector and we anticipate that there will be significant uptake by institutional and private investors of this new mode of owning property in Dubai.