The UAE’s 100 percent foreign ownership change went into effect on June 1st, 2021. This revision in existing Company Law was welcomed as a watershed moment in the country’s development. However, the change left a few significant commercial sectors in the “restricted” category. Education, audit, legal, healthcare, and real estate brokerage were among them. One of the motivations for this action was to purchase time for decision-making rather than deregulating quickly. After a few months of change, the UAE has removed real estate brokerage from the restricted category, allowing foreigners and ex-pats to own 100% of the property.
Foreigners typically had just 49 percent or fewer ownership rights in any company, whether it was a real estate agency or not. A UAE national/sponsor/partner having a minimum 51 percent share in the business was required under the Company Law. However, the majority of brokerage businesses operated with zero foreign ownership, which was designed to prevent foreign brokers from fleeing the nation at the expense of transacting parties, misusing the license, or engaging in other fraudulent acts. As a result, the responsibilities of ex-pats and foreigners in brokerage firms were generally limited to managerial or lower-level positions. As a result, we can anticipate a paradigm change from the status quo with the proposed reform.
The impact
In Dubai alone, there are roughly 2,500 real estate brokerage firms. As a result, the immediate knock-on effect might be corporate reorganization in existing companies, with foreigners/ex-pats being able to buy in and local shareholders being able to sell out. Promotions and adjustments could be made across the board, all in the name of improving organizational efficiency and corporate interests. Externally, though, this reform may persuade a slew of foreign brokerage firms that have been wary of setting up shop in the country to reconsider. The option of avoiding complex arrangements and legal responsibilities associated with the pre-reform Company Law will entice such risk-averse businesses.
Requirements under reformed law
Despite the fact that ex-pats and foreigners can now fully own brokerage businesses, they are still required to hire a UAE-based Local Service Agent (LSA). The LSA does not have to be a stakeholder in the company, but he or she must be a full-time employee at the very least. That is to say, the new law includes a provision that will help local brokers find work. New businesses must also apply for a license from the Department of Economic Development (DED) in order to operate in the country. They need also to obtain approval and a NOC through the Real Estate Regulatory Agency’s Trakheesi system (RERA). The Trakheesi system was created to increase openness and maintain the integrity of brokerage transactions.
The market health
Due to buoyant buyer attitude and sustained post-pandemic recovery, as well as Expo-driven activity, the UAE property market is currently suitable for brokerage enterprises. The official Q3 2021 statistics back up this data. Commercial property sales surged 34% year over year, with mortgage transactions outnumbering cash purchases by a factor of two. On the residential front, average sales prices in both Dubai and Abu Dhabi grew by 4% year over year as demand increased.
The Dubai property market now has 629,000 homes on the market, with 23,000 more expected to be added by 2021. To this purpose, real estate brokerage deregulation could stimulate transactions, alleviating concerns about a market surplus. In addition, the entrance of international brokerage firms and the restructuring of existing enterprises may improve industry rivalry, which may benefit the national economy.