New Law to Introduce REITs to Dubai

REITs DubaiLegislative moves to introduce a Real Estate Investment Trusts (Introduce REITs to Dubai) under the jurisdiction of the Dubai International Financial Centre (DIFC) are reportedly underway by the Dubai Financial Services Authority (DFSA), the independent regulator of the DIFC.

“The proposed Investment Trust Law introduces a new investment vehicle for use by Funds to facilitate the establishment and operation of Real Estate Investment Trust (REITs) products,” said DFSA’s CEO, David Knott, according to Khaleej Times.

One of the world’s fastest growing economies, Dubai’s gross domestic product is projected at USD 107.1 billion, with a growth rate of 6.1% in 2014. Although a number of core elements of Dubai’s trading infrastructure were built on the back of the oil industry, revenues from oil and natural gas account for less than 5% of the emirate’s revenues. It is estimated that Dubai produces 50,000 to 70,000 barrels (7,900 to 11,100 m3) of oil a day and substantial quantities of gas from offshore fields. The emirate’s share in the UAE’s total gas revenues is about 2%. Dubai’s oil reserves have diminished significantly and are expected to be exhausted in 20 years. Real estate and construction (22.6%), trade (16%), entrepôt (15%) and financial services (11%) are the largest contributors to Dubai’s economy.

Dubai’s non-oil foreign trade stood at $362 billion in 2014. Of the overall trade volumes, imports had the biggest share with a value of $230 billion while exports and re-exports to the emirate stood at $31 billion and $101 billion respectively.

By 2014, China had emerged as Dubai’s largest international trading partner, with a total of $47.7 billion in trade flows, up 29% from 2013. India was second among Dubai’s key trading partners with a trade of $29.7 billion, followed by the United States at $22.62 billion. The Kingdom of Saudi Arabia was Dubai’s fourth trading partner globally and first in the GCC and Arab world with a total trade value of $14.2 billion. Trade with Germany in 2014 totalled $12.3, Switzerland and Japan both at $11.72 billion and UK trade totalled $10.9 billion.

Historically, Dubai and its twin across Dubai Creek, Deira (independent of Dubai City at that time), were important ports of call for Western manufacturers. Most of the new city’s banking and financial centres were headquartered in the port area. Dubai maintained its importance as a trade route through the 1970s and 1980s. Dubai has a free trade in gold and, until the 1990s, was the hub of a “brisk smuggling trade” of gold ingots to India, where gold import was restricted. Dubai’s Jebel Ali port, constructed in the 1970s, has the largest man-made harbour in the world and was ranked seventh globally for the volume of container traffic it supports. Dubai is also a hub for service industries such as information technology and finance, with industry-specific free zones throughout the city. Dubai Internet City, combined with Dubai Media City as part of TECOM (Dubai Technology, Electronic Commerce and Media Free Zone Authority), is one such enclave, whose members include IT firms such as Hewlett-Packard, EMC Corporation, Oracle Corporation, Microsoft, Dell and IBM, and media organisations such as MBC, CNN, BBC, Reuters, Sky News and AP.

The government’s decision to diversify from a trade-based, oil-reliant economy to one that is service- and tourism-oriented made property more valuable, resulting in the property appreciation from 2004 to 2006. A longer-term assessment of Dubai’s property market, however, showed depreciation; some properties lost as much as 64% of their value from 2001 to November 2008. The large-scale real estate development projects have led to the construction of some of the tallest skyscrapers and largest projects in the world such as the Emirates Towers, the Burj Khalifa, the Palm Islands and the most expensive hotel, the Burj Al Arab. Dubai’s property market experienced a major downturn in 2008 and 2009 as a result of the slowing economic climate. By early 2009, the situation had worsened with the Great Recession taking a heavy toll on property values, construction and employment. This has had a major impact on property investors in the region, some of whom were unable to release funds from investments made in property developments. As of February 2009, Dubai’s foreign debt was estimated at approximately $80 billion, although this is a tiny fraction of the sovereign debt worldwide. Dubai real estate and UAE property experts believe that by avoiding the mistakes of the past, Dubai’s realty market can achieve stability in the future.

The Dubai Financial Market (DFM) was established in March 2000 as a secondary market for trading securities and bonds, both local and foreign. As of fourth quarter 2006, its trading volume stood at about 400 billion shares, worth $95 billion in total. The DFM had a market capitalisation of about $87 billion. The other Dubai-based stock exchange is NASDAQ Dubai, which is the international stock exchange in the Middle East. It enables a range of companies, including UAE and regional small and medium-sized enterprises, to trade on an exchange with an international brand name, with access by both regional and international investors.

Dubai is also known as the City of Gold, because a major part of the economy is based on gold trades, with Dubai’s total gold trading volumes in H1 2011 reaching 580 tonnes, with an average price of US$1,455 per troy ounce. Now to introduce REITs to Dubai

A City Mayors survey ranked Dubai 44th among the world’s best financial cities in 2007, while another report by City Mayors indicated that Dubai was the world’s 27th richest city in 2012, in terms of purchasing power parity (PPP). Dubai is also an international financial centre and has been ranked 37th within the top 50 global financial cities as surveyed by the MasterCard Worldwide Centres of Commerce Index (2007), and 1st within the Middle East.

In 2012, the Global City Competitiveness Index by the Economist Intelligence Unit ranked Dubai at No. 40 with a total score of 55.9. According to its 2013 research report on the future competitiveness of cities, in 2025, Dubai will have moved up to 23rd place overall in the Index. Indians, followed by Britons and Pakistanis are the top foreign investors in Dubai realty.

The Photo credit: DeeMakMak via VisualHunt / CC BY-ND


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