The first title deeds are being issued in Dubai under ‘fractional’ property ownership, which could dramatically add to the investor base in the local real estate market. In its simplest form, fractional ownership allows multiple investors to acquire an apartment, villa or other property types, and with each of them having ownership rights through the title deeds.
Under the current rules, “A maximum of four investors can acquire property together in the emirate,” said Sameer Lakhani, Managing Director at Global Capital Partners. “The fractional ownership rules apply to existing as well as older projects as long as they are approved by RERA (Real Estate Regulatory Agency) and Dubai Land Department in meeting necessary requirements.
“You are also developing the possibility of potential buyers buying fractions of the property from the auction market just as they can from the primary and/or secondary market. There will be a steady and vibrant secondary market that will develop for fractional properties in the medium term.”
Developer makes a case for fractional
In this regard, the developer World of Wonders (Wow) was the first off the mark, offering fractional ownership at its new project, SLS Dubai Hotel & Residences. Investments start at Dh460,000 for the units. The project is part of Downtown Dubai.
Yahya Alkan, CEO of WoW Real Estate Development, said: “We are making luxury real estate investments more accessible to more regional and international investors, especially Expo 2020 attendees.
Add to investor base
Fractional ownership is quite the path-breaker for Dubai real estate. Until now, individual investors had to buy a unit in full. There could be other investors, but only one gets to have the title deed under his/her name. (There is also the crowdfunding option, where investors groups have rights to a property, but the title deed is issued to a special purpose company rather than the individual.)
Dubai’s property market is coming off a record year, and market sources confirm that January has extended the hot streak. There is market chatter of one of Dubai’s biggest developers notching up a near Dh500 million in sales bookings in the last month alone.
The move to open up fractional ownership allows the authorities and developers to target a much wider base of buyers. For instance, a Dh2 million apartment becomes more accessible if a set of investors pitch their funds into it – and at the same time have individual ownership certificates attesting to it.
Improving rental market
Simultaneously, there are more than enough sings of the rental market too recording steady improvements and favouring landlords for the first time in nearly five years. This too will pull in more investors into the property market to offer their units as rental properties, whether for the one-year leases or, the now equally popular option, holiday homes.
“Fractional ownership lowers the cost of a property investment in Dubai, and creates equal rights for that investor group,” said a property consultant. “It should give a compelling reason for residents to park their funds in Dubai property rather than divert it on assets outside the country.”
Transfer the rights
If one of the fractional title deed owners want to exit, he can just sell his stake and transfer the deed to another buyer. The processes are smooth enough. In fact, there was a recent auction that called for bids on a fractional ownership deed.
Now, if fractional is not for you, there is the crowdfunding option. Here, a special purpose vehicle (SPV) company is set up and collects funds from investors in smaller ticket-sizes. This establishes their rights to a property owned by the SPV company, and they get returns based on what the unit will fetch in rental income or a future sale.
“Fractional ownership is different from crowdfunding as the latter makes use of SPVs to bring down the barriers to investment to as little as Dh5,000 or Dh10,000,” said Lakhani.