Dubai property owners who are Indians and used credit cards to buy home in the high-end UAE city are starting to get notices from the Enforecement Directorate (ED), The Economic Times reported quoting persons familiar with the knowledge of the matter.
The ED’s notices are being sent to who had unintentionally either swiped international credit cards (ICCs) to pay the initial deposits on visits to the UAE or had clicked on payment links sent by Emirates developers. However, this is not in compliance with Indian laws.
According to the ET report, at least three Indian Dubai property owners were sent legal notices by the ED in February, questioning the source of their funds.
What you cannot do while buying Dubai properties
As per guidelines of the Reserve Bank of India (RBI), foreign exchange regulations prohibit individuals from borrowing to buy foreign properties. Since credit card transactions are like short-term loans, using them to buy Dubai properties is breaking Indian laws.
The liberalised remittance scheme (LTS) of the RBI used by resident individuals to buy stocks and apartments abroad requires them to use banking channels to transfer tax paid funds.
What are the punishments?
Those who have received the shock ED notices for buying and want a condonation from the central agency, or those who are yet to come under the scanner, are in a Catch22 situation, as per the ET report.
They are subject to a number of punishments. These include bearing the hassle of correcting the transaction, paying penalties and in some cases, absorbing the loss incurred by selling the property in a weak real estate market amid notions about Dubai’s safety going to a toss.
What is the solution?
According to Rajesh Shah, partner at the CA firm Jayantilal Thakkar & Co, who was cited by ET, the affected property owners who have received ED notices are required to go to the RBI to get their transaction regularised. This is because the RBI may take a “lenient view” if the money is legitimate even though the mode of payment was wrong.
ICCs, such as local cards, are used for current account transactions like buying books, downloading movies, and booking hotels.
Dubai property sector shows weakness
The Dubai property sector is showing early signs of weakness amid the Middle East conflict, making the sale of such properties having a risk of loss for the owners who have received ED notices.
Data from analysts show tanking transaction volumes of Dubai property and some real estate agents pointing to price reductions, according to a report by Reuters.
The war, and Tehran’s strikes against Israel, US bases and Gulf states including the United Arab Emirates, have pierced Dubai’s image as a safe haven for the world’s wealthy.
Real-estate transaction volumes in the UAE fell 37% year-on-year in the first 12 days of March, and 49% month-on-month, Goldman Sachs analysts estimated in a note published this week.
Some properties are already being offered at big discounts, with price cuts of 12-15%, according to some real estate agents and messages on social media that Reuters reviewed.