The UAE has tightened real estate investment rules and asked the property agents, brokers, and law firms to report cash transactions worth Dh55,000 and above to the UAE's Financial Intelligence Unit.
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The government announced new reporting requirements for certain real estate transactions to strengthen its regulatory framework for anti-money laundering and countering the financing of terrorism.
In addition, experts said the government's latest move may bring temporary slowdown in real estate sector that attracted more than Dh150 billion investment during the first half of 2022. Real estate activities are estimated to generate about 5.5 per cent of the UAE's overall gross domestic product (GDP) annually.
The Ministry of Economy (MoE) and the Ministry of Justice (MoJ) developed the new criteria for real estate transactions in partnership with the UAE's Financial Intelligence Unit (FIU).
In a statement on Monday, the two ministries said all real estate agents, brokers, and law firms are obliged to file reports to the FIU for purchase and sale transactions of freehold real estate properties in the UAE that include any of the below three methods of payment, whether for a portion or the entirety of the property value:
1. Single or multiple cash payment(s) equal to or above Dh55,000
2. Payments that include the use of a virtual asset
3. Payments where the fund(s) used in the transaction were derived from a virtual asset
Rules apply on individuals, corporate entities
The reporting mechanism requires real estate agents, brokers, and law firms to obtain and record the identification documents of the parties to the applicable transaction, among other relevant documents related to the transaction. New rules will apply to both individuals and corporate entities, according to the statement.
The decision was made following multiple meetings and discussions amongst the MoE, MoJ, FIU, and other competent authorities in the UAE, including the Executive Office for Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT).
The UAE is one of the first countries to implement such a mechanism for real estate transactions involving virtual assets, marking the latest example of the UAE's sustainable and evolving approach to the global fight against money laundering and terrorist financing.
Developing regulatory framework
Abdulla bin Touq Al Marri, Minister of Economy, said the real estate sector is one of the key sectors for investment and a vital pillar of the country's economic development. Therefore, he said, the UAE is keen to adopt procedures and regulations that promote sound financial practices in the sector in line with the highest international standards.
“The new requirements, with regards to the reporting rules of both the real estate and legal sectors, ensure the development of their regulatory frameworks, leaving little or no room for manipulation or illegal practices that could negatively impact the work environment and the economy and investment within these sectors,” Al Marri said.
Drive against money laundering
Abdullah Sultan bin Awwad Al Nuaimi, Minister of Justice, said the introduction of reporting rules for certain transactions in the real estate sector is another example of how the UAE is coordinating across the government and with the private sector to strengthen the national framework for anti-money laundering and countering the financing of terrorism.
“By working closely together to provide a clear regulatory framework and effective reporting tools, the UAE is able to take quick action to protect the economy from known and emerging risks,” he said.
Ali Faisal Ba'Alawi, head of the UAE FIU, said these new measures will improve the quality of financial intelligence available to the FIU and will be used to trace the suspicious movement of funds or investments as part of our fight against money laundering and terrorism financing.
“Importantly, the requirements further strengthen the stability and integrity of the UAE's real estate sector and provides all stakeholders with greater transparency in a sector that is a key contributor to the UAE's economy,” he said.
A step in the right direction
Saad Maniar, senior partner at Crowe, said real estate is one of the key contributors to the economic growth and the latest move may bring temporary slowdown, which is the need of the time to control inflation. At the same time, he said new rule will help combat malpractices and ensure a long-term sustainable growth.
“With such move, the UAE raising the bar of regulatory compliance and it is a step in the right direction to strengthen the stability of the financial system,” Maniar told Khaleej Times on Monday.
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Only clean money welcome
Atik Munshi, managing partner, FinExpertiza UAE, said real estate is one of the few sectors which absorbs large amounts of funds and some of such funds could be illicit or laundered.
“Plugging the inlets and outlets through proper screening and documentation is a way to ensure that only clean money is utilised in these real estate transactions. The UAE government has very smartly involved and laid the onus on some of the DNFBP's like real estate brokers and law firms so an indirect reporting chain is created as an early warning signal,” Munshi told Khaleej Times on Monday.
“This compliance technique will strengthen not only the reporting quality but also significantly enhance UAE's reputation as a jurisdiction which has a non tolerance policy towards money laundering. Cash and digital money are few tools normally used for such laundering and this regulation is expected to curb their illicit entry,” he said.
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Muzaffar Rizvi
Muzaffar Rizvi is an accomplished financial journalist with more than 25 years of experience in the...