Are Foreign Investors Really at Risk in Dubai Real Estate?

Hello, my name is GG Benitez, and I'm with The Dubai Connect podcast. I am here today with probably the most important interview that I have had and will have yet for you out in America, so stay tuned. This is season two of The Dubai Connect podcast. So with us today on The Dubai Connect podcast, we have Dr. Mahmud Alburai. I will let him introduce himself a bit, but it is very exciting to have him. Please listen to everything that he has to say because he is the man. Dr., thank you so much for having me. Tell us your position and your role that you play, which is so important here in Dubai. Well, I have so many positions, but let me briefly say my name is Mahmud Alburai. I am the President of DMCA Emirates, but at the same time, I am a senior adviser in Dubai Land Department, the government entity that regulates real estate market here in Dubai. In addition to my other roles that I'm doing as professor of management at the American University in Dubai and my role with the United Nations disaster risk reduction, so I have many hats. That's part of me building an understanding of the ecosystem. Being government, academic, private sector, and NGO at the same time gives me better perspective on the real estate industry that I'm in love with. I see all the different views and the interests of the different stakeholders, what can be done, what can be fixed, and so on. That's fantastic, and how many doctorates do you have? One doctorate and five masters. Five masters. Highly educated, highly intelligent, very personable. I am honored to have you here. Because with my role of connecting United States and Canadian investors with the opportunities in Dubai, there's one question that comes up over and over. I believe at this point it's already been established that Dubai is one of the top real estate markets. People from all over the world know that ultra high net worth individuals are migrating here, moving their headquarters here for their businesses, moving here as expats. Dubai is the top place Googled to move to. But there's this question: how safe is my investment in Dubai if I live in America? That's a good question to start with. Let me tell you something. Dubai and the leadership of Dubai has been always focusing on safety of investment. That's why if you go back to the history of Dubai real estate market and how we started, actually we were the first city and place in this GCC region, maybe even in the Arab region, to allow foreigners to own property. We call it the freehold law in 2001. And that's because we have a forward-looking leadership who wanted to open up the market. When we open up the market, we want to be a global city. We don't want to be a regional city. We want to be a global player. That was driven by strategy and vision, it wasn't a random thing. We want to be a global city and we want to attract investors and companies. We're not focused on real estate alone. We want to be the best city on Earth for people to live, to work, to entertain in safety and in tolerance. We have 210 nationalities who invested in the market fully trusted the system. The safety we're talking about here has two aspects. First, the physical safety, which is guaranteed. We are one of the safest cities on Earth by all indices and competitiveness indicators that measure safety of cities. You can go night, morning, you're safe. Everything is safe from that personal aspect absolutely. But from real estate perspective, and being a regulator, every law we introduce, we look at the safety of investors' money. That's why the first law we introduced in 2007 was the trust account law. We wanted trust. So that law says foreigners and non-foreigners, any investor who buys in Dubai off-plan Dubai has a trust account managed by the government for that project. Your money will not go to the developer. Your money is in an escrow account that the government will release payment as per construction. This system of off-plan has been actually one of the most protective systems worldwide. You can go anywhere and will not find all these details. You buy off-plan and you get a trust title deed that says you are the owner of that unit that is going to be built in two or three years. We take the safety of investment and security of investment to the last mile. We make sure that you're protected not only when you buy, but also when you live there as an owner or tenant. When you sell later, we look at lifecycle regulation. We regulate the pre-buying, the buying, the management of the building, the exit of it. We make sure that it's protecting you till the end. That's why a lot of people actually come back and buy again and buy again. It also requires some due diligence from the investor side. You cannot just randomly buy anywhere. You want to make sure that this developer you're buying from is a licensed developer. Go to Dubai Land Department and see that he's a licensed developer. The project is licensed. It has an escrow account. You pay to the escrow account. If you do so, I guarantee you that your money is safe. Not to shamelessly plug myself, but that is the value also of working with a certified International Property Specialist or a broker such as myself. Because in the US we are being marketed many different developers, and from the US, they may not necessarily know who is who. That's why it is important to make sure that yes, we know that Dubai overall has these safety measures, but as you said, that additional due diligence of making sure you're investing with the right developer is critical. Definitely. Also, dealing with the right agent, broker, expert. We have 18,000 agents here in Dubai. Some people may have their own agenda. That's why we always ask investors to check on who they're dealing with, how trustworthy this person is, if they're licensed, if they're approved. Because with all respect, maybe some developers will give this broker more commission, so he will sell this project even if this project is not for the best interest of the buyer. That's why we say that the buyer also has to connect with the right agent, someone who understands American investors. We're talking about American investors and what they're looking for and Dubai projects at the same time, connect them with the right opportunity. They should be careful with whom they're dealing with and who they will work with. To that same point, there's something that Americans also maybe don't understand, because it's not necessarily how it works in the US. We as brokers are paid through the developer, so there's no disadvantage to working with a broker. However, if you work directly with the developer's agent as you just suggested, that developer agent is really going to obviously only promote their own projects. Whereas when you work with a broker and you're not paying more for doing so, because we're paid by the developers, we are going to help strategically advise that American-based client on based on their target, whether it's short-term capital appreciation, long-term holding and purchasing because they want to live, rental returns, whatever it is, and what the best project and neighborhood overall strategy is. Then we walk them through the process from connecting them to a mortgage broker, a property manager, when is the best time to sell and reinvest, etc. So that's another misconception that there is in the US, that oh I'll get a better deal if I could go directly with the developer. I actually think going through someone who's expert and connected with all the developers will definitely guarantee that you will get a good deal. Dealing with an agent of a certain developer, definitely you will end up buying from that developer because that's where he makes money. In general, Dubai has all measures to protect investors. The only thing we require from the investor is to do a little bit of extra work, make sure he deals with the right people. Not everyone is licensed. Not everyone is a broker. Not everyone is an expert. Not everyone is a great developer. So we make sure we do all our homework and we work as a team. Now there's a question I get asked often. How do we know that Dubai is not all of a sudden just going to take our property from us or close our account? They seem to think that there are other countries because that could happen. For example, I won't mention them, but in other countries where the government will just confiscate the property of the property owners. How do we know that's not going to happen? Because Dubai is a Middle Eastern country across the globe. That's a great question. Let me tell you, it never happened and it will never happen. Being someone who knows how the government thinks, we will never do it. That's why last year we attracted 600 billion dirhams of transaction, the largest in history of Dubai. Over 210 nationalities. 71,000 new investors in Dubai buying for the first time. So we build a country and a city based on trust. We will never compromise on trust. I can tell you maybe the protection you will get by buying here is even more than what you will get in the US. The government will do all it takes to make sure that you are protected. We never took people's money. We never took people's property. It's a country that's governed by laws, regulation, and judicial system. So nothing will happen from that angle. However, when you talk about buying an off-plan property, there is a law that says if you don't pay, if you pay 30 percent and you stop paying, then the developer can give you notice one time, two times, and then he can cancel your contract. He takes a certain percentage and refunds you a certain percentage. So that happens based on law. But if you fully do your obligations and pay on time, then you're fully protected. No one will take your property. Great. I mean, this is what I'm sharing over and over again, but there's no more important person to hear from than I believe from you. Another question that I'm asked by potential investors in the United States is this. If they're in the US, as we know, in order to purchase an off-plan property, they don't even have to come to Dubai. It's all done digitally and safely. But then the question is asked, okay, when it's time to rent it out, the project is finished, it's completed, and now I have a long-term renter. What are my rights and how do I know I'm not going to stress out by issues and having to jump on a plane from across the world and come handle them? What are the owner's rights for their rental properties? Yeah, that's a good question. Owners should really be aware of their rights. We have laws and regulation that deals with the relationship between tenants and investors. Let me clarify a couple of things. It goes all back to dealing with the right agent, dealing with the right company that will do all the paperwork for you. As you said, a lot of things can be done digitally. You don't need to come. You may also have power of attorney if you want someone to represent you. The checks can be deposited in your bank account and can be transferred to you. There are a lot of foreigners actually. 40 percent of people who own property don't stay in Dubai. You're not the only one. There's a system there is protection and so on. Rent increase in Dubai is governed by a rent index. We have a rental index that tells you how much you can increase. So you make sure three months before the expiry of the rental contract, see what the rental index says, and you can increase a maximum of 20 percent, depends on how your rent compared to the rest of the market. Eviction here in Dubai, you need to be aware of it. You cannot evict someone without a reason. If the tenant does not pay for one month, you can evict them for nonpayment. If they're using your property illegally, occupying it without your permission, you can also evict them. But if you want to evict them for a reason, it has to be one of three. Either you want to use it for your own use, you want to live there, or you want the building is old, you want to demolish it and do the maintenance, or you want to sell it. These are the three reasons to evict someone. If he's paying and he's doing everything as per the contract but you still want to evict him, you want to make sure you're one of these three cases. In that case, you have to give one year notice. But what if you're only on a one-year contract? Then you don't have to do anything once that one-year contract is over, right? Let me clarify that. Dubai rental is renewed as long as the tenant wants to stay there and is paying. However, you can increase the rent. You can evict as I told you. You can give him one year notice. A lot of people actually do a tenancy contract today and give a notice one year right away. So they're saying you have one year. I want to sell in one year. I want to live there after one year. Or I want to do maintenance after one year. So they should be aware of these things because it will save them time and money. No, absolutely. Okay, that's thank you for clarifying that. I did not know that. That's a point that we always see. People don't get it when it comes to their rights. So it's important to know that if you want to increase rent, you have to give three months notice. If you want to evict someone, you give one year notice. If you want to increase, make sure you look at the rental index. All these things are the most problematic issues that they should be aware of. So there was a situation in the United States where it got a lot of news. It was all over the national news where a renter wouldn't leave. They refused to leave. They were provided the eviction notice. What would happen hypothetically speaking if the renter says I'm not leaving? What are you going to do? You're in the United States come get me. They have to leave. We have an execution team that will go there. As part of the court, we have something called a rental dispute center, a judicial center that has an execution team that will go and evict. Once the judge says eviction, it's eviction. There's no way that he stays there. One other question I'm asked often and I'm not sure if this is appropriate for you, Dr. Mahmud, but how do they know they're not getting gouged on pricing for maintenance on their property? Is there protection in place? You mean service charge? Freehold buildings here in Dubai, owners have to pay service charge to cover the common areas, maintenance, security, cleaning, energy and electricity for the common areas. That's now fully digital by the government. We have a system called Mulak. In this system, there is a process. The management company of a building will prepare a budget. This budget has to be audited by an auditor, an external auditor. He will see all the numbers, make sure it's correct. Then it comes to an internal auditor in the government. He checks that this service charge is correct. We will sometimes lower it. We will say no, remove this cost, this is not acceptable. Once we approve it as government, it will come to you from our system as government and an invoice by Dubai Land Department. So you will look at it and say once you see it, this means it has been audited and it's gone through the process and you know you're properly protected. This is the amount you have to pay. That's another really important thing that I did not know, and that answers a great concern I should say of somebody investing from across the world. Do you have a suggestion if somebody should invest as a corporation or as an individual when buying property in Dubai? Well, I'm not aware of the personal reasons why corporate or individual, but let me tell you, here in Dubai, I think now with the corporate tax coming soon, I prefer individual because it will not be taxed. However, some people want a company for certain protection or something for liability, or maybe they're buying in groups. But most people buying, foreigners in Dubai, they buy individual. Who are you seeing, the top foreigners? Because that's changed over the past year. There are a lot of nationalities, but recently we've been getting a lot of Europeans, Western Europeans. British. German. French. Austrian. Chinese are back. So there are a lot of nationalities. Again, 210 nationalities. Almost every one. In the UN, we have 193 countries. In Dubai, we have 210 countries who invested. So even more than the ones recognized by the UN system. At the end of the day, if you go worldwide, Europe, America, you see a lot of political issues that make people feel that it's not the right place to be. So a lot of Europeans are coming because they feel that Europe is losing its competitiveness. It used to be a competitive nation or competitive continent, but it's getting lower and lower in terms of competitiveness. A lot of laws and regulation maybe not supporting businesses. Businesses feel that's an opportunity for countries who are open and accepting of businesses to come and locate. Another question I get asked, we know that Dubai, with the real estate market, has broken records in the past couple of years with the increase of price per square foot, with the volume, the sheer volume. How do you strategically manage the supply and demand to keep that demand consistently greater than the supply and not have an oversupply of building that would contribute to potentially a market crash? Let me take you one step back and say Dubai has now a strategy 2040. The strategy 2040 actually is about doubling our population by 2040. Today we have 3 million. We want to reach almost 6 million by 2040. That's the demand side. We're going to have two more economic centers. We have three now, two more new economic centers. We will build a sustainable city. Yes, doubling our green areas and so on. So we have a strategy, we have a plan, we're working on demand. That's why Dubai in the last two years introduced the golden residency to give people more long-term opportunities to stay here and be part of this country. That also creates a lot of demand. But also giving them opportunity to have their own business without a local partner. That also fuels demand for business ownership and bringing your companies here to be established in the country. We've been working a lot on the demand side. On the supply side, we have a lot of developers and those developers by law have to own the land 100 percent and have to pay 30 percent in the escrow account of the construction cost. So they have a big skin in the game. We make sure that will help us reduce supply because not everyone has that 30 percent and fully owns the land. Plus, we have a committee within the government for the supply that comes from government developers. There is a government committee led by Sheikh Muhammad bin Mohammed bin Rashid, who's the deputy ruler of Dubai. They give approvals for any master developer or government developer before they introduce any new project. So the supply is managed. We make sure that, but at the same time, we want to make sure also that we are affordable. With more supply, prices will be affordable. We're making sure we're interesting, we're attractive, but also we're affordable. Interesting, attractive, affordable, and keeping that demand going to reduce the chances of a bubble risk. In fact, I know that UBS just came out with their recent report that showed that Dubai is still considered a fair buy and that it is not facing a bubble. May you please expand on what you look at? The outlook for Dubai real estate for 2024 and maybe beyond, in addition to the amazing master plan that's very strategic. Usually I refrain from making forecast for one reason because we always hear forecasts and they don't happen. But what I can tell you for sure is that we have great leadership. His Highness Muhammad bin Rashid was asked 10 years ago how much you achieved of your vision for Dubai. He said 10 percent. Then a few years later, he was asked the same question and he said 6 percent. They said how come it was 10 percent and now 6 percent? He said our vision becomes bigger and bigger on a daily basis. We always dream big and we always look at what's next. From that angle, I'm telling you we have a strategy, we have vision, we know what we're doing. Dubai will continue to be attractive, a global city on the map, compared to New York, London, Singapore, Paris. If you look actually at cities in this region, in the GCC, they're still even more expensive than Dubai. Owning a home in Karachi and Delhi is more expensive than Dubai with all the facilities and infrastructure we have here. So compared to international markets, Dubai maybe ranks 25 as more affordable than most of the international markets, and definitely more than the top markets in the US. San Diego just got ranked as the most expensive city in the US, and LA and New York and Miami are also expensive. So of course, Dubai comparatively speaking is much more affordable. And then the property taxes. The tax situation, Dubai being a zero tax city, doesn't necessarily completely translate over to Americans because America is one of the only countries in the world where all Americans are taxed on their worldwide income. However, there are no property taxes in Dubai, whereas that eats quite deeply into the profit margins in the United States. The good thing about all the good things about Dubai when it comes to taxation is we have a very favorable system. Let me say there is no income tax on individual level. There is no property tax. The only transfer fees happen when you sell a property, and that's usually the new buyer will take it. The 4 percent, we only have that of 5 percent and corporate tax is happening soon at 9 percent. However, for real estate, it's attractive. You will not have to pay property tax. When you buy real estate, you may end up paying 4 percent, but other than this, nothing. Then when you repatriate your profit back into the United States, unlike a lot of other countries, you're not being taxed here at all on that. It's as quick a process as a bank to bank transfer and your money is back there. So that is incredible. We know that capital appreciation doesn't get taxed as well. Do you want to project what the capital appreciation is for Dubai real estate? Or I know you said you don't really like to throw out projections. Do you want to? I say we need to be long-term. Buy long-term. Sometimes when you go to the stock market, you buy some companies and you know they're fair value or undervalue. Then you know that in 5, 10 years from today, like Tesla and all these companies, they would really be valued. So Dubai is, I mean, should buy a piece of Dubai. That's my advice to people. Because in the long run, things will really be rewarding. I know recently I bought land in Jabal Ali, and that's an area that's now developing in Dubai. Within 6 months, this is almost 150 percent more return. So if you invest in the right location and be patient, you don't need to worry. It's not quick. Real estate is not quick. It's not Bitcoin. But the world's wealthiest people have become wealthy because of real estate and diversifying. Right now, especially for my American clients, where capital appreciations are not there, the rental returns are not there, it's too expensive to buy, and Airbnb is extremely restricted, plus the taxes. People have the money. They need to place it somewhere. It works for them. That's why I've embarked upon this journey. Because it's all Dubai, Habibi, right? I always say, Habibi, come to Dubai. I'm sorry to our American friends. We've always been brought up on the American Dream thing. The American Dream. But now we see a shift to the Dubai Dream. People really come to Dubai not just to buy property. I'm not saying come and buy property. Come and be part of the success story. We had last year 4,000 millionaires moved here to Dubai. We have thousands of families from Europe coming to Dubai, choosing it to be home. It's a safe city. It's a great place to raise your kids, to be tolerant, to be entrepreneurs, and so on. I will keep saying Habibi, you should get a part of Dubai. Buying in Dubai, I mean 400,000, 100,000, you can get a studio here in Dubai. And that's, you can get you 6, 7 percent return with no taxation. So I think if don't give your kids money, give them a home in Dubai. Give them money because it's truly the city of the future. And looking at the strategic master plan and the sustainability and what you're doing here, it is where I believe 75 percent of the world is just several hours from Dubai. Whereas we in America sometimes think we are the center of the world. We're in this bubble. Then you come to Dubai and realize that no, actually the majority of the world is closer to Dubai. Dubai is where East meets West. Dubai is growing not just real estate, which is yes, that's what I'm working on, but the business. In fact, how many Fortune 500 companies have now set up their headquarters here in Dubai because of the safety, because of the opportunities, because of the tax minimizing of taxes, of course, the higher profit margins? And 85 percent of Dubai are made up of expats. So when you talk about tolerance and diversification of people, I feel it when I walk around here. Even though I am an Arab, I feel more internationally accepted, tolerance, harmony going on walking around Dubai than I have in any other city I've ever traveled to, and I've traveled quite a bit. I hear more languages here. But everybody speaks English, by the way. That's a misconception. You don't have to speak Arabic. I hear more languages. And this phrase, I've said it on previous podcasts, so my partner is going to kill me because I repeat it. But in Arabic, you have it, and it says tolerance is what pushes a society forward. And you feel that here. There's a respect for all religions, there's a respect for all people of all backgrounds, and there's just this desire to pull talented, hardworking, highly educated, successful people to come and contribute to help with the vision of what you have for Dubai. Definitely. Thank you for clarifying all these stereotypes that a lot of people think. This is in the middle of nowhere, desert, champs, and so on. No, it's an advanced, developed, leading international city. But on top of that, you have very active, proactive government that is forward-looking. It always looks at the best interest of people. We've seen it in COVID time how we managed to take care of citizens and expats, get them vaccinated in no time. The fastest, one month. A couple of months and we were vaccinated. In America, businesses were destroyed. Mental health was affected because people couldn't go to school, couldn't go to work, their business is shut. And yet with so many international people, you were able to manage everything. We dealt all the same, and the president of the country, she Muhammad bin Zayed, said don't worry, you're all our people, you're all our citizens. So you see such humanistic leadership, leadership who cares about every single person living in this country. We want them to be happy. We want them to be successful. We invite people who don't have opportunities. Come, find the opportunity, do it yourself. You will not have any obstacle. You will see successful people here coming from all over the world, Asia, America, Europe. And they're all getting all the support from the government, from the private sector, and so on. It's a great place. You can definitely see it when you come and visit how welcoming this country is. People actually come here. They say we will stay one or two years, and then they end up staying more and more. That's why I always tell them, why do you rent your home? Why not you buy it? You've been here 20 years. They say we always said one year, one year. But now it's 20 years. So coming even to Dubai, you need to think about long-term. It's not a city that's meant to be short-term. And from Dubai, you reach Saudi, you reach the GCC, you reach Europe, Asia. You can sell anywhere. Yes, it's an open market with all these facilities. It's an amazing opportunity. It's worth trying. Well, it's pulled me in because I just came a year and a half ago for a 5-day vacation, first time I ever came to the Middle East. After one day of being here, I completely changed my career because I owned a PR firm, which I still own, to keep finding a way to come back and explore more. And sometimes you'll hear Americans say, oh, isn't Dubai just Vegas on steroids? I said, there is, if that's what you're looking for, and you want to come and party and go to the fancy restaurants and go to the clubs, the shows, there's nothing like it here. It's the most amazing. But there's so much more. It caters to families. It caters to business. Even DFC, for example, that's growing right as a vision of the international community here, the financial community here as well. That's a common law zone as well. In Dubai, we have the civil law, but the IFC is a common law zone. So even people who want to be in financial or insurance or legal and they're used to common law, we have a jurisdiction, a free zone in Dubai. And we have so many free zones, by the way, that are also tax exempt from the 9 percent corporate tax. Oh, really? Yeah. Opportunities are everywhere. And I think it's, I mean, I don't want to say it's not happening soon, but what's happening soon is that we will have more and more technology companies and more and more funds coming to Dubai. I would like also here to thank you because you mentioned that you came here to Dubai and then you started doing the connect. So thanks for the connect. We always need people who at the end of the day, stereotypes come from misinformation and misinformation. And we want you to be a source of credible information to our friends in the US and Canada to know the facts about what's happening here in this city and this country. Correct. That's my mission. That's why I have harassed you endlessly. No, actually, I wanted you to take more time and think about it. Maybe I'm not the right person. Oh, you, I was. I have, but you insisted. So I'm coming, have insisted via every single means. It was to get a hold of you because I admire you and respect your own story of how you came to be where you are and who you are. The way that you're a very admirable, educated, well-spoken, intelligent, kind, and humble man. I'm honored that you even know who I am. And then even more honored now that you are on my podcast to help Americans feel even more comfortable investing in Dubai and knowing that it is a safe and profitable investment. Not just for real estate, as you said, but in general with business and lifestyle, etc. So with that, I say thank you. Make sure to subscribe, like, follow, and share this episode. Stay tuned for the next one. This is season two of The Dubai Connect podcast.