The realty sector in the GCC (Gulf Cooperation Council) countries, comprising of Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain and Oman is poised for rapid growth given the booming global banking and financial industry. According to Moody’s analysis of the Bahrain banking sector, 33% of loans sold by retail banks in the Kingdom are linked to construction and real estate. And there is evidence that investments in property sparks keen interest in foreigners too.
It is therefore essential for any buyer to understand the regulatory landscape before venturing into investments in real estate. We give below 5 fundamentals for banks as well as real estate investors to keep in mind before making decisions on investments.
Law of the Land
Realty investment fund managers in the GCC countries need to be aware of the property ownership regulations in the region. The GCC banking system is not a single block but a host of different structures which is not governed by Federal regulations. Every GCC country has its own compliance norms that need to be adhered to, by property owners and banks such as Regulatory Agencies like RERA, SAMA, AERA, Ministry of Municipality and the regulatory arm of the Land Department. These agencies monitor every aspect of compliance and Operational Automation related to realty in the countries.
The Department of Economic Development monitors real estate facilities and ensures that they are in compliance with the laws of the land. The Commercial Compliance & Consumer Protection (CCCP) inspects the properties licensed by the Real Estate Regulatory Agency. In Dubai, the Dubai Land Department and the Department of Economic Development is the monitoring authority, which is in possession of the data and information and also levies penalties in case of violations.
A Strong Case for Technology
As the GCC countries are attractive propositions for property owners across the world, they make a prospective case for adoption of fintech. Innovations in banking and process automation are aimed at easing payments, digital wealth management and enhancing market access. By adopting technologies like Artificial Intelligence, banks can ensure that customers adhere to compliance and regulatory norms. Several UAE banks have adopted digital and mobile banking very recently, but this might be the beginning for more investment in new technologies. Realty sector holds the promise of collaboration between financial institutions, technology companies and real estate industry.
Escrow Account Management
Some banks in the GCC countries are permitted to offer an escrow account that includes services like account opening, balance management, cheque collections, periodic cash-flow reporting and comprehensive guidance on completion of the Land Department formalities. Automation of escrow account helps meet Real Estate regulatory requirements.
Ascent ProMart Escrow Account Management software is successfully implemented with more than half a dozen banks in the GCC countries, enabling them to grow their real estate/escrow business. While meeting RERA rules and guidelines, ProMart facilitates the bank Escrow Account Management services and simplifies the project registration process, escrow accounts opening at the developer level, retention account, as well as sub-account opening at the investor level. It allows the bank to validate all required documents (pertaining to RERA or the Bank) prior to the opening of the escrow account and linked to a specific project via a dual authority (maker-checker concept). Moreover, it handles different types of controlled disbursements (Construction Payments, Project Management Payments, Broker/Marketing payments), according to rules set by RERA.
One of the most critical determinants of eligibility for property owners is credit history. The credit bureaus keep track of transactions of every client in the banking space, including on-time payment. The best way to be compliant is to schedule auto deductions from bank accounts. This automated service helps prompt payment and avoids unnecessary compliance risks.
Foreign Land Ownership
Foreign land ownership is allowed in the United Arab Emirates. However, each Emirate country has its own laws to regulate ownership. In Dubai, only UAE nationals, GCC nationals and companies fully owned by these can own property. If a company is incorporated in the UAE or GCC but has a foreign shareholder, it is not considered a UAE or GCC national for the purposes of owning property in Dubai.
In Saudi Arabia, the Foreign Ownership of Real Estate Regulation regulates the acquisition by foreign, non-GCC nationals, of real estate. For a foreigner to own property he needs to have normal legal residency status and permission from the Ministry of Interiors.
While owning or investing in real estate is profitable, investments through banks via escrow accounts need to be facilitated and monitored. The realty sector is risk-prone and can fall prey to fraud causing irreparable damage to investors and even banks, who lend to their clients, enabling investments. Software like Ascent’s ProMart facilitate the process and help banks manage their processes better.
Department assigned to handle real estate compliance — Gulf News
Fintech waves reshape GCC banks — Bloomberg
7 tips that get you best mortgage deals — Gulf News
Real estate ownership n Saudi — Tamimi
State of GCC banking system — PFIE