Real estate — Islamic Finance Guru

Before delving into specific investment options, it’s essential to grasp the regulatory framework governing investments in the UAE. The country has made significant strides in enhancing its regulatory infrastructure to attract foreign investors. The UAE consists of seven emirates, each with its own regulatory authority. The two main financial centres, Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM), operate as free zones with their regulatory frameworks.

One crucial aspect for expatriate investors to consider is the Foreign Direct Investment (FDI) Law introduced in 2018, which allows up to 100% foreign ownership in certain sectors. This liberalization has opened up new opportunities for expats to invest across various industries, including real estate, manufacturing, and services.

The important thing to understand is that regulation is there to protect you, the investor. Our strongly-felt recommendation is that if you are investing through a provider (as opposed to directly investing yourself in real estate) you should make sure that that provider is regulated by a competent authority, ideally locally in the UAE.

If you are being offered investment opportunities in real estate in the UAE, top of your list of questions should be: who are you regulated by? Note: this does not apply if you are directly buying the property yourself, as sellers there are not required to be regulated by a financial authority. However, we will go through some due diligence questions you can ask below if you are investing in real estate directly.

Choosing your property location – UAE or global?

One of the first questions you need to ask yourself as an investor looking to do real estate investing is: where do I want the physical property to be located? 

The fact that you are now based in the UAE does not necessarily mean that you can only invest in property that is physically located in the UAE. We will split this article up into two: (i) opportunities investing from the UAE in global property and (ii) opportunities investing from the UAE in local property.

So where should you choose? Well the answer is more than just a pure investment question of which location you are more bullish on. It also comes down to your earning currency.

You see, as an expat, your financial situation is likely to be a little more complex than it used to be back in your home country. You very likely now have two banking setups, one in the UAE and one back home. 

You may also either be earning in AED within the UAE or it is also possible that you are earning in your home currency, be that USD, GBP, CAD, INR or whatever other currency it is. 

Currency is a very important factor to bear in mind. For example, if you are earning locally in AED but then choose to invest in British property through a UK provider, you almost certainly will need to convert that money into GBP. So in effect you are taking two forms of risk on your shoulders: the first you know about which is the pure investment risk (i.e. will the property live up to its expectations and deliver the result I want it to?). The second though is currency risk: you might buy a property to flip in the UK and make 20%, only to find that GBP has got weaker against AED and you have only actually made, say, a 15% total return if you look at the cash you sent versus the cash you got back.

Taxes are another important factor when choosing where to invest. It is beyond the scope of this article to go through every single tax possibility (you should get specialist tax advice because tax is such a nuanced and individual thing), but you might be subjected to some capital gains taxes or income taxes depending on what type of property you buy and where. Again, this can diminish your total returns.

Lastly, the jurisdiction you intend to finally end up with the money is vital as well. For example, if you are looking to bring it back to the UAE in AED, then currency risk will apply but if you intend to invest in, say, UK property and leave the money in the UK as GBP then currency risk is not an issue because you will receive your money back in GBP.

In short, consider in detail these factors: currency, taxes and your final jurisdiction before deciding where the best place is for you to do your property investing.

Investing in global property from the UAE

If you have decided that you want exposure to global property, for instance the US, UK, India etc then you have a few options before you.

1) Publicly listed companies or REITs

By far the simplest way to get property exposure without leaving your bedroom is to simply go to the public markets and look for vehicles which give you exposure to real estate in the country you want or you can also find one with global coverage.

Opting for a company that has exposure to real estate could include buying property developers themselves and sharing in the performance of the company as they execute at company level. In the UK, an example would be Watkin Jones Group (ticker: WJG).

Alternatively on the public markets, you can invest in Real Estate Investment Trusts which are essentially publicly listed vehicles you can buy a share of which own properties directly themselves. Some REITs will only be buying property in certain countries, and other may have a global mandate.

Ideally, you want in both instances for the debt levels to be zero although scholars allow up to a 33% threshold if you compare debt to market cap or debt to assets.

There are plenty of REITs available and doing some research online will yield good results depending on what jurisdiction you want. If you choose India, for instance, you will see some REITs focussed on commercial, some on residential and even within those you have sub-categories such as focussing on office space etc. 

The world of REITs is very big and you will have to do research on which ones you buy. But they offer a tremendous way of getting property exposure in foreign countries in a way that is also liquid (i.e. you can easily sell) and which pays regular income.

2) Private companies

The other way of getting exposure to real estate abroad is to go through private companies. This is where you need to be very sure about the regulatory standing and genuineness of the company you are dealing with.

Once you are past that stage though, you will see that there are plenty of specialist companies who can help you get access to property in your chosen country. 

Our own investing platform, Cur8 Capital, offers access to a regulated private fund which in turn invests in UK property.

There are also many crowdfunding players out there offering a share of individual properties. They typically buy individual properties and then sell them down on their platform so you can take a slice. Here is a directory of such platforms that you can investigate. As well as the safety and regulation aspect, please also be careful regarding the sharia compliance of such opportunities and, if in doubt, ask them directly whether they have any conventional debt inserted into their structures.

The key thing when deciding where to invest is to consider what your goals are when it comes to property investing. For instance, if you are just looking for income, you should not be buying a property which needs to be developed. Similarly, if you are targeting double-digit returns, you are unlikely to achieve that by investing in blue-chip real estate where yields tend to be much lower in exchange for the high quality of tenant you have in the property.

I must stress again though that investing through private companies requires extremely strong due diligence. If you are speaking with a company who are offering you property investments, you must research them to a high standard. Regulation is a key aspect as we discussed, but also try to speak to people you know who have used them.

3) Direct Investing

The way to invest in property and cut through all the people in the middle is of course to go out there and buy a property or number of properties in your target jurisdictions. 

There are multiple advantages to this:

• Control over all aspects of the deal
• Ability to target specific locations and to limit to areas you know well
• Ability to self-select tenants 
• Realising all of the capital gains if you sell and income in the meantime without any middle person taking a cut
• You can potentially get hold of sharia leverage to maximise how far your investment goes

The downsides however are:

• Hassle of managing a property (obtaining tenants, dealing with them, etc)
• Taking on the risk (and expenses) of having to maintain a property
• Requires more capital 

If you prefer this route though as an investment decision, then I believe it only makes sense if you have a setup local to the country that you would be investing in. Do also be scientific about your returns profile – factor in taxes, plus mitigation around the property itself (e.g. you might have to replace a faulty boiler 1 year into your ownership).

Investing in local property from the UAE

Investing in UAE real estate has been a topic of many dinner-table discussions over the years. And nearly everyone has a story to tell: whether it’s them almost buying a property on the Palm when everything was off-plan and cheap, to losing money, to making significant gains.

The Dubai property market, in particular, can be a bit of a roller coaster. This can come as a surprise to many expats who are used to real estate acting as a “slow and steady” market as opposed to something which is volatile.

The reasons for this are many, but things do seem to be changing. Historically, Dubai has not enjoyed the reputation of a place that is tried and tested, and so the market has often discounted real estate in Dubai heavily in times where crisis seemed to be on the horizon. The two most recent big examples being COVID and the 2008 global financial crisis, plus a few ups and downs in between.

Compare that to traditional markets like the US and the UK whose economies have been tested for centuries, it is perhaps understandable why the Dubai real estate market was seen as less mature and thus came with some volatility.

But if you ask people locally, they will tell you that things seem to be different now. Dubai and the UAE generally has proved itself as somewhat of a global financial hub. It attracts plenty of talent because of the quality of living, the safety, and it has made huge strides in having laws and regulation that make business both easy and safe. This CNN article from 2022 goes into the case for Dubai becoming the major financial centre in more detail.

And interestingly enough, even though many perceive Dubai to be expensive, the UAE sits 38th on this list of most expensive places to buy apartments in the city centre. The UK is 13th in that list, the US is one spot above the UAE in 37th. The list is topped by Hong Kong.

Why do I say all this? I say it in order to set some context as to why investing in local property can be appealing. There is still plenty of space to be developed in the UAE, and with every year that goes by, it proves itself to be more mature. There have been a spate of hedge funds setting up shop in Abu Dhabi recently and this only seems to be growing.

For property investors, this is a good mix of factors: a maturing and stable economy with a solid global reputation but still in its early years relative to other places in the world, the availability of space, the availability of labour, and regulation which facilitates the development of real estate rather than preventing it.

Dubai has also been making investing in real estate attractive, recognising that making people stick around for the long term has its advantages within the economy. It has offered investors the chance of a “golden visa” if they buy real estate worth 2m AED ($544,528.80). In fact, it recently scrapped the requirement for investors to have to put 50% downpayment to get the golden visa. As long as you are buying a property worth 2m AED be it through a mortgage, off-plan with instalments or outright cash, you will be able to qualify for the golden visa.

The golden visa gives you a 10-year renewable visa as opposed to the standard 2-year one which is linked to your employment, meaning you have to leave if your employment ends.

Anecdotally, I know that this has got many expats wanting to buy property purely for the golden visa. The idea of having some stability that is not tied to employment in a country where their families are growing up, and where they now find the idea of moving back to their home country quite difficult.

Clearly, the backdrop for real estate investing in Dubai seems to be attractive then: a growing population, a maturing economy, and prices which, on the global scale, are still quite affordable. Let’s look at how you can achieve this by going through the same 3 options that we looked at when looking at global property.

Public companies or REITs

The large property developers in the UAE are mostly privately-held and so it is not possible to get exposure to them through the public markets. There have been a number of high-profile company listings on the local stock markets (most recently Spinneys, a supermarket with the Waitrose brand) and I would certainly not rule out more property developers listing on the stock market.

That said, the biggest and most reputable property developer, Emaar, is indeed listed on the stock market and this is one possible way to get indirect exposure to the success of the UAE property markets.

Additionally, there are a couple of REITs that are listed on the local markets: Emirates REIT and ENBD REIT. These offer a hands-off way to get exposure to real estate in the UAE, and in the case of the REITs an opportunity to take regular dividends and also understand the underlying properties that they hold.

Emirates REIT for instance owns Index Tower in DIFC which many of you will be familiar with. 

Private companies

There are plenty of private companies offering opportunities to invest in UAE real estate. 

Again, the same precautions apply, except multiply that by ten when in the UAE. Unfortunately, there have been too many scrupulous (and convincing) people promising the world to investors only for nothing to ultimately materialise.

There may be more good companies who can help in this space (please reach out if you know any), but I will talk about 3 of them.

• Cur8 Capital: also recommended earlier and this is our in-house investment platform but definitely worth signing up to see when opportunities to invest in UAE real estate come up. So far there has been one flagship opportunity in Dubai Marina.
• Smartcrowd: a regulated and digital-first way of getting exposure to UAE property with the benefit of being able to invest relatively small amounts of money.
• Getstake: similar to Smartcrowd

Direct investing

Direct investing in the UAE is a little different to elsewhere in the world. The primary factors you need to consider are:

• Villa or apartment
• Location
• Existing building, in development, or yet to be developed

Most investors tend to opt for apartments because the demand tends to be higher. However, it is worth understanding the local dynamics fully before you make that choice. Many may not appreciate that the UAE property market is restricted. There are many areas where expats cannot buy. These tend to be the more local, conservative, family-friendly areas.

As such, for the folks who have been in the UAE for a while and plan their long-term future here with families, when they look to buy they want to buy a villa because that is usually the preference for families. Given the restrictions, there are very few places around where you are allowed to buy a villa and where you can actually own the freehold. 

So if you want to buy a place for you to live in, the villa versus apartment factor is a huge consideration. Even if you are buying for income, you will naturally be restricted on the villa side because of the reasons above. And if you buy the freehold of a villa, you may find that the demand is not as high because the only people wanting to move into that area are the ones that want to buy (because now you are competing with all the other areas where people can rent).

Apartments on the other hand tend to be a bit easier to sell and to fill with tenants. You do occasionally get individual blocks of apartments within restricted areas which themselves are freehold and available for expats to buy (but the rest of the villas/apartments in that area are unavailable to non-locals). There is such a block of apartments close to where I live.

Location is of course an important factor and you should really understand any local market before choosing a location. Again, it boils down to why you are buying. Whether it’s to rent out or to flip, it may influence your decision. Look for areas where you will get the types of tenants you want, and where demand is high. Nothing groundbreaking here.

Lastly, you need to consider whether you are buying an existing place or something that is off-plan. Off-plan has its benefits in that you will likely be buying in cheaper and can pay in instalments. However, there is the risk that development stalls or, at worst, fails. You also run the risk of shoddy development works and potentially the fact that the area might not take off if you are buying in an up-and-coming area that is not yet established.

Some of these risks can be mitigated though and Dubai has made a lot of effort in this regard. If buying off-plan, you can ensure that the money is deposited in an escrow account that goes through the official Dubai Land Department channels. That way, money is only released to the developer when agreed milestones are hit, and everything is run through in a legal and contractual way. 

Additionally, if you stick to developers who have a solid reputation in the market, you can go and visit some of their finished properties and see what the quality is like for yourself. Speak to tenants, make sure that there are no longstanding issues, and generally get comfort that the developer knows what they are doing.

In the UAE, you have much more availability of buying things off-plan direct from the developer and if you are buying more than one property you can of course have that negotiation with them to lower the price.

One of the very big pulls for buying direct in the UAE is the availability of sharia-compliant leverage. Coupled with the availability of instalment plans from developers, it makes for a very attractive way to buy real estate in the UAE.

Conclusion

Navigating the investment landscape in the UAE as an expat requires a thoughtful approach and consideration of individual financial goals and risk tolerance. But if you take a methodical approach of thinking about where in the world you want to invest and then how you will actually achieve that by weighing up the pros and cons of each approach, you will be able to make the decision that is right for you and your goals.

Remember: with investing there is never a one-size-fits-all approach. It is good to take advice from friends and family, but it is always important to put that in the context of your own needs and goals before making a decision.