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Dubai continues to lure Indian investors

Property prices in Dubai increased by an average of 14.5% in April

Dubai’s property market, known for its transparency and regulation, has been a magnet for foreign investors, including Indians for a long time. In the light of Dubai’s new corporate tax regime, institutional investors may need to adjust investment strategies to focus on factors such as capital appreciation and rental returns.

The migration rate in India may have slightly decreased in 2023 compared to the previous year, but it continues to impact real estate markets in various countries. Dubai, in particular, remains an attractive destination for investors and high-net-worth individuals (HNIs) from across the globe. And Indians investors top the list. The net migration rate for India in 2023 stands at -0.329 per 1000 population, showing a 3.8 per cent decline from 2022.

Why are Indians looking at Dubai?

Several deep-pocketed HNIs have traditionally been investing in overseas markets. An uncertain Indian market has made them look at some of the already developed countries where the sector was regularised decades back. Moreover, a growing number of real estate investment trusts (REITs), securities and investment agencies that trade like stocks and facilitate investments overseas have made purchasing foreign real estate, albeit indirectly, substantially easy. Often backed by fund managers, these offer investment opportunities in a pool of good-quality commercial and residential assets. With countries understanding the importance of regulation and transparency, more and more countries have developed a market that is conducive to foreign investors.

Dubai’s market is one such regularised market in the world. The city’s strong economy and political stability have instilled confidence in investors, assuring them of a secure investment environment. Its strategic location as a global business hub and its excellent infrastructure have also played a crucial role in attracting investors. Compared to India’s realty market regularisation, which is still evolving, Dubai’s regulatory landscape is well developed.

The impact on the realty market

Trends suggest that Indians have shown a keen interest in acquiring properties in Dubai, not only as a means of investment but also as a second home or a vacation destination. Some of the visible impacts on the market are as follows:

Rising property rates: Property prices in Dubai increased by an average of 14.5 per cent annually in April as sales of residential units continued to rise, driven by the off-plan market. It is likely that the rates will continue to rise in the next 8-10 months period.

Strong rental market: The rental market in Dubai is strong, with a high demand for residential and commercial properties, making it an attractive option for Indians looking for passive income.

Availability of ready-to-move-in properties: Indian nationals have displayed a particular inclination towards luxury properties, channelling their investments into upscale residential apartments, villas, and commercial establishments. The influx of Indian capital has not only energised the real estate market but has also played a pivotal role in shaping and creating iconic projects and landmarks throughout Dubai.

The impetus to under-construction properties: Indian investors have also played a significant role in the off-plan property market, which involves purchasing properties before their completion. This type of investment allows investors to benefit from attractive payment plans and early bird discounts. Indians have shown a keen interest in off-plan projects, capitalising on the potential for high returns as the property appreciates in value upon completion.

But understand the tax challenges

While Dubai is a safe investment hub, there is a need for further clarification on the latest tax amendments. The UAE Ministry of Finance has announced the issuance of Cabinet Decision No. 56 of 2023 on a non-resident person’s nexus in the UAE for the purposes of Federal Decree-Law No 47 of 2022 on the taxation of corporations and businesses. UAE corporate tax (CT) regime provides for 9 per cent corporate tax on taxable income exceeding Dh375,000 (approximately Dh8.4 million) from the financial year starting on or after June 1, 2023.

As per the law, foreign companies and other non-resident juridical persons will be subject to corporate tax on income derived from real estate and other immovable property located in the UAE and will be required to register in the UAE for corporate tax purposes. It applies to both immovable property that is held or used in a business and immovable property that is held for investment purposes in the UAE.

Given the current circumstances, investors who are involved in business ventures should adjust their portfolio strategy in accordance with the recently established regulations in order to maximise their profits. Although there is a need for further clarification, it may still be beneficial to consider investing in Dubai and potentially benefit from long-term property value appreciation.

To make well-informed investment decisions, it is essential for investors to clearly define their investment goals, whether it be capital appreciation, rental income, or a combination of both. It will help narrow down the available options and guide their investment choices.

The writer is CMD, Colliers India.