The real estate market in Dubai is shattering previous records, as both residential and commercial property prices continue to soar. June 2022 saw the highest sales figures since 2009, with a record AED 22.7 billion worth of real estate transactions. With such indicators of booming growth, and the UAE’s growing reputation for economic resilience, the country poses an attractive target for individuals looking to relocate for greater security and commercial prospects. Meanwhile, the UAE has capitalized on the wealth of opportunities cryptocurrencies can provide, encouraging and facilitating adoption of technologies that look likely to play a growing role in the economy of the future.
The combination of these flourishing industries means that the UAE has been on the front edge of international markets embracing crypto purchases in the luxury real estate domain. On the real estate side, the UAE government has demonstrated its typically proactive approach in cultivating inward investment. His Highness Mohammed bin Rashid Al Maktoum issued two key pieces of real estate legislation on 7 July 2022, both designed to support the growth of property investment funds in Dubai. These legal provisions add to the wave of investor-friendly policies enacted in 2022 across all sectors and widen the floodgates for a surge of property development investment.
But with these rapid new capital inflows comes a heightened risk for financial crimes. Against the backdrop of the Financial Action Task Force’s (“FATF”) “grey” listing, the UAE must toe the line and fulfil the regulatory requirements of international watchdogs, while cultivating an investor-friendly environment. This is especially the case for the real estate sector, which was identified as high risk by the FATF in its Mutual Evaluation Report and Follow-up Reports (“Reports”). The UAE has made impressive strides in advancing the regulatory Anti-Money Laundering/Counter-Terrorist Financing (“AML/CTF”) framework since the “grey” listing and continues to seek the right balance between attracting foreign investment and controlling inward financial flows.
The Ministry of Economy issued Circular 05/2022 (“Circular”) on 24 June 2022 to real estate brokers and agents. The Circular added a new layer of reporting obligations to strengthen the existing AML/CTF regime and has made national headlines in recent weeks. The Circular imposes a duty to report to the Financial Intelligence Unit (“FIU”) any payments that exceed the legal cash threshold of AED 55,000; where the method of payment is a virtual asset; and/or, when the funds used for payment were converted from a virtual asset. The threshold itself is a fresh requirement that will have huge ramifications for regulated company operating in the real estate sector. But as these regulations specifically cover real estate purchases made in cryptocurrencies, the authorities have effectively added an additional layer of scrutiny to foreign capital that is brought to the country in virtual asset form. Alongside reporting obligations, there are also additional due diligence measures and record keeping requirements, to ensure that payments have not been anonymized or used in an attempt to hide illicit funds. In this way, the authorities can sustain their drive for foreign investment in the real estate market, whilst ensuring they are satisfying their obligation to protect against money laundering, in line with FATF expectations.
There is a common principle in most transactions known as ‘buyer beware’. In the real estate sector, the days of buyer beware look increasingly outmatched by agent and broker obligations. The tables have turned, and now the onus is on the seller’s side to ensure they are adhering to regulatory pre-requisites before undertaking a real estate transaction. What this means for companies attempting to ease barriers for those that hold their wealth in virtual assets will become more apparent over time. In the meantime, sellers, beware, and Know Your Customer.