Property funds promise to increase the investments of investors through the construction and sale of real estate. If you intend to establish a property fund in the UAE, then this material will be useful for reading, as it considers the regulatory framework for the creation and functioning of such funds in this country, not only from the positive side, but also from the side of possible obstacles.
Property fund defined
Property funds attract money from investors and invest them in construction bonds, finance the construction of facilities, buy and sell real estate, shares of construction companies. The property fund’s objective is to maximize the money invested by sponsors. Many funds diversify their investment portfolios: they buy stocks and bonds of non-real estate companies. If you are considering setting up a property fund in the Emirates, then you should be aware that here some property funds, despite the name, do not invest in the construction sector at all.
With some amendments and possible deviations, property funds work according to this scheme:
- the fund appoints a management company (fund managers);
- sponsors invest in the fund;
- fund managers purchase real estate with the money received;
- fund managers generate and direct profits to the fund;
- part of the profit is distributed between investors: in proportion to their share in the fund, they receive a share of rental income and/or resale.
Choosing the jurisdiction
In order to establish a property fund in the UAE, first, you need to decide on a jurisdiction by choosing one of the many free economic zones.
The Free Economic Zone in the Emirates is a great place to organize a business. This is a geographically defined area where 100% foreign company ownership is allowed. A local partner or agent is not required to open a company or a fund in one of the FEZs in the UAE. To register a company here, a legal address is required.
On average, two free zones are also available in all emirates. Experts consider the Dubai International Financial Center (‘DIFC’) and the Abu Dhabi Global Market (‘ADGM’) as the most suitable for opening a property fund in the UAE.
From a practical point of view
If you are determined to establish a property fund in the UAE, then you need to consider all sides of this issue and not forget that a lack of understanding of the local specifics can cause you trouble at the stage of registering a property fund until the fund is launched.
First, you need to decide on the type of fund that you want to launch, in accordance with specific goals. It is also necessary to devote to such vital aspects as the required capitalization, management structure, and other issues of critical importance that should be clarified and agreed on from the start.
If your goals and strategy are clearly defined and you are already fully prepared to establish a property fund in the Emirates, then it will be useful for you to study and better understand the local psychology, which may differ from that you are used to in your homeland. For example, local authorities involved in the process may have their specific rules that you will have to comply with, and some of these requirements are not necessarily written in the law and could take the form of unwritten practices. Nevertheless, maintaining a positive dialogue with them is vital for your project.
If you need advice on legal and regulatory matters regarding the establishment of a property fund in the UAE, please contact our experienced specialists who will provide you with the necessary legal support at all stages of setting up a property fund in the Emirates.