Dubai properties have been on an unprecedented upswing, attracting a significant influx of Indian buyers and investors. In 2024, the city ranked as the third-best performing global destination for prime real estate, boasting a notable price appreciation. Interestingly, Indian investors account for a significant share of this growing demand in Dubai, encompassing not just high-net-worth individuals but also an increasing number from smaller Tier 2 and Tier 3 cities in India. Nonetheless, this surge of investment has now drawn the eyes of India’s Enforcement Directorate (ED), leading to heightened scrutiny and investigations into suspicious property purchases.
The financial watchdogs of the Indian government, armed with data from income tax authorities and the Reserve Bank of India (RBI), have begun investigations into potentially undeclared overseas assets. This investigation arises from concerns about potential money laundering and breaches of foreign exchange rules, which have hindered the pace of Indian investments in Dubai’s real estate market. In the final quarter of 2024, a slight decrease in transactions was noted, and industry experts anticipate a further downturn as a result of the ongoing investigations.
Despite the slowdown, Dubai’s residential market has continued to exhibit strong growth. In the last quarter of 2024, the total registered home sales value in the city stood at AED 65.23 billion, reflecting a substantial year-on-year increase. However, on a quarterly basis, a slight decline was observed, which some attribute to the caution exercised by Indian buyers following the ED’s intensified probe. The average registered transaction sale value also saw a decline, suggesting a potential cooling-off phase amid regulatory concerns.
Why Indians from Tier 2 & 3 Cities Are Investing in Dubai Properties?
The rising cost of real estate in Indian metropolitan areas like Mumbai and Delhi has been a key factor driving mid-sized investors towards Dubai. Property prices in India’s top-tier cities have surged significantly, often matching or even surpassing those in global investment hubs. As a result, Dubai has emerged as a lucrative alternative, offering world-class infrastructure, tax-friendly policies, and a cosmopolitan lifestyle. Notably, nearly half of Indian buyers in Dubai now hail from Tier 2 and Tier 3 Indian cities, indicating a shift in the investment patterns.
Indian developers and real estate consultants have noted a significant increase in interest from these smaller towns, where individuals are keen to take advantage of Dubai’s investor-friendly environment. Compared to the unpredictable Indian real estate market, where regulatory policies and taxation can cause difficulties, many view Dubai as a stable and appreciating asset class. Further, the tax benefits in Dubai, including the lack of capital gains and income tax, further enhance its appeal.
Buying Property in Dubai? Conduct FEMA Check First
Dubai developers are rolling out grand property fairs, Instagram is flooded with tempting payment plans, and brokers are dialing non-stop—creating a dream scenario for aspiring homeowners. But beneath the glitz, these enticing offers can be a regulatory maze, posing risks for both high-net-worth investors and ambitious buyers eyeing a slice of the Gulf’s most vibrant city.
Several Indians, unknowingly entering into agreements that necessitate a down payment of only 15 to 20% of the property’s value—with the remaining part paid in installments over 4 to 8 years, are unaware of the fact that they might be breaching foreign exchange regulations or operating in a legal grey area.
India’s foreign exchange regulations, particularly under the Foreign Exchange Management Act (FEMA), impose strict limits on outward remittances for property purchases. Under current rules, an individual can remit up to $250,000 per financial year, with families pooling funds to acquire more valuable properties.
However, many Dubai-based property deals involve structured payment plans that require buyers to make installment-based payments over several years. Such transactions can be problematic under FEMA, as they may be interpreted as financial obligations in foreign exchange—something that requires prior approval from the RBI.
The recent crackdown has revealed instances where individuals purchased properties in Dubai while circumventing these regulations. The Indian tax authorities, in collaboration with UAE counterparts, have identified numerous cases where buyers did not declare their overseas assets. Last year, several resident Indians received notices regarding undisclosed property holdings in Dubai, leading to intensified investigations.
The ED’s crackdown marks a turning point in cross-border real estate investments by Indians. While the scrutiny may lead to a temporary dip in transactions, Dubai’s real estate market is expected to remain a strong contender for Indian investors in the long run. The key takeaway for buyers is to remain vigilant about legal and regulatory obligations to avoid potential repercussions.
