UAE Law and Practice Contributed by: Duncan Pickering, Nicola de Sylva, Sean Cope and Marta Almeida, DLA Piper LLP
2.11 Legal Restrictions on Foreign Investors There are legal restrictions on foreign investors acquir - ing real estate, as set out in 2.1 Categories of Prop- erty Rights . 3. Real Estate Finance 3.1 Financing Acquisitions of Commercial Real Estate It is common for the acquisition (or development) of real estate in the UAE to be financed by obtaining a loan (often with a mortgage as security for repayment). A loan can be provided either on a bilateral basis (sin - gle lender providing the entire facility) or on a syndi - cated or club basis (multiple lenders, each providing parts of the overall facility). Only banks licensed by the UAE Central Bank are eligible to be mortgagees of record for real estate in the UAE. Another popular financing structure in the UAE is through Islamic financing, which has developed in accordance with Sharia principles. A key principle is that the payment and receipt of interest (riba) is prohibited and any obligation to pay interest is con - sidered void. However, Islamic principles do not pro - hibit a financier in an Islamic finance transaction from making a profit, rental or other return on its asset or investment. Existing real estate may be financed through sale and leaseback arrangements (ijara), whereby the borrower sells the property to the Islamic financier and subse - quently leases it back in exchange for paying rentals. However, this kind of arrangement may attract regis - tration and other costs, potentially making a leasing or ijara structure economically unviable. Commodity murabaha (tawaruq) financing structures rely on underlying commodities trades in order to cre - ate debt-based obligations (like a conventional loan). This structure does not involve additional transfers and can also be structured on a bilateral or syndicated basis in the same way as for a conventional loan. A commodity murabaha structure can also be secured using a mortgage over the underlying real estate.
Other Financing Structures There is a general trend towards the establishment of real estate investment funds/real estate investment trusts (REITs) whereby stakeholders inject capital into a fund, where the principal objective is to invest in strategic real estate in the UAE (and/or the wider GCC area) and to grow a real estate portfolio for the fund’s investors. Another alternative is to access the debt capital mar - kets, through either bonds or sukuk (also known as Islamic bonds). 3.2 Typical Security Created by Commercial Investors Security over real estate and real estate interests (such as usufruct or musataha) can be taken by way of a mortgage that is registered at the relevant land depart - ment. Each Emirate (and free zones) has specific laws dealing with mortgages, and mortgages are generally governed by the Civil Code. Generally speaking, mort - gages over real estate may only be granted in favour of a bank that is licensed by the UAE Central Bank. Movable Property In 2020, the UAE issued Federal Law No 4 of 2020 (the “Movable Assets Mortgage Law”) as a regulatory regime, which provides that a wide variety of assets (such as accounts, trade payables or receivables, or equipment including future property) can be secured without demonstrating possession – provided that the security is registered on the applicable security register. The Movable Assets Mortgage Law provides a greater level of certainty in the context of real estate financing transactions and also enables security to be taken over movable property that is similar in effect to a debenture or “floating charge”. In terms of registra - tion, the current applicable security register where such security over movable property is to be regis - tered is the Emirates Integrated Registries Company. Security Over Shares Where a special purpose company (SPC) has been established for the purposes of a real estate invest - ment or development, it may be possible for the finan - ciers to take security over the shares of that SPC. As
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