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Who Owns Offshore Real Estate? Evidence from Dubai (May 2022)

1 Introduction

A major blind spot of exist­ing eco­nom­ic sta­tis­tics is the lack of data on cross-bor­der real estate. 

While progress has been made in the esti­ma­tion and analy­sis of off­shore finan­cial wealth, lit­tle is known about real assets owned by house­holds out­side of their coun­try of res­i­den­cy. How large is off­shore real estate? Which house­holds are more like­ly to own prop­er­ties abroad? Does this form of wealth typ­i­cal­ly evade tax­a­tion? These ques­tions are increas­ing­ly rel­e­vant for pol­i­cy­mak­ing, because real assets are not cov­ered by the mul­ti­lat­er­al auto­mat­ic exchange of infor­ma­tion between tax author­i­ties that entered into force in 2017. This cov­er­age gap cre­ates incen­tives for tax evaders to rebal­ance port­fo­lios away from finan­cial assets toward real estate. There are also long-stand­ing con­cerns that off­shore real estate may some­times be used to laun­der mon­ey and to evade inter­na­tion­al sanctions. 

In this paper, we attempt to shed light on this aspect of finan­cial glob­al­iza­tion by ana­lyz­ing prop­er­ty own­er­ship in one of the world’s largest off­shore finan­cial cen­ters, Dubai. We do so by exploit­ing micro-data cap­tur­ing the own­er­ship of about 800,000 prop­er­ties in this ter­ri­to­ry, one of the sev­en emi­rates form­ing the United Arab Emirates. These data were pro­vid­ed by con­fi­den­tial sources to the Center for Advanced Defense Studies (C4ADS), a US non­prof­it orga­ni­za­tion ded­i­cat­ed to analy­sis and report­ing of con­flict and secu­ri­ty issues world­wide. The dataset con­tains prop­er­ty-lev­el char­ac­ter­is­tics, includ­ing in most cas­es the owner’s nation­al­i­ty as of 2020. To our knowl­edge, this is the first time that such com­pre­hen­sive and gran­u­lar data on the own­er­ship of cross-bor­der real estate is ana­lyzed in any coun­try. Our main con­tri­bu­tion is to use this data to esti­mate the val­ue of real estate owned in Dubai by coun­try and to ana­lyze coun­try-lev­el pat­terns. We do not study indi­vid­ual cas­es: all the sta­tis­tics pre­sent­ed in this paper aggre­gate many obser­va­tions. Our analy­sis deliv­ers four main findings. 

First, Dubai off­shore real estate is large. We esti­mate the total mar­ket val­ue of prop­er­ties in Dubai at USD 533 bil­lion in 2020, of which about 27 per­cent is for­eign-owned. Because we can­not iden­ti­fy the nation­al­i­ty of about 7 per­cent of the own­ers, for­eign own­er­ship is like­ly to be even high­er. By our esti­mate, off­shore real estate in Dubai adds up to at least USD 146 bil­lion. To put this num­ber in per­spec­tive, pio­neer­ing work by Bomare (2019) sug­gests that off­shore real estate held in London through shell com­pa­nies amount­ed to about USD 66 bil­lion in March 2019. Foreign-owned real estate in Dubai thus appears to be about twice as large as in London, despite the fact that Dubai (with a pop­u­la­tion of 3.5 mil­lion) is only a third the size of London (pop­u­la­tion of 9.0 million). 

Second, geo­graph­i­cal prox­im­i­ty and his­toric ties are impor­tant deter­mi­nants of for­eign invest­ments in Dubai. The bulk of for­eign-owned prop­er­ties in Dubai belong to own­ers from the Middle East, South Asia, Europe, and Central Asia. The largest for­eign own­ers (both by the aggre­gate val­ue of prop­er­ties owned and by the num­ber of own­ers) are Indian nation­als: about 35,000 Indians own Dubai prop­er­ties, worth almost USD 30 bil­lion (20 per­cent of total off­shore Dubai real estate). The United Kingdom comes next (23,000 unique own­ers, with prop­er­ties worth USD 15 bil­lion, 10 per­cent of the total). The remain­ing top coun­tries by aggre­gate val­ues include coun­tries in the wider Middle Eastern and Central Asia region (e.g., Pakistan, Saudi Arabia, Iran, Jordan, and Russia) and large economies (e.g., Canada, United States, and China). About 8 per­cent of off­shore Dubai real estate belongs to own­ers from the European Union. These pat­terns remain when we focus on the most afflu­ent neigh­bor­hoods, where the share of real estate owned by for­eign­ers is par­tic­u­lar­ly large, around half. The main dif­fer­ence is that while India remains the largest own­er, its share of for­eign-owned real estate falls, while the share of Russia is mul­ti­plied by two, to reach 6 per­cent in the most expen­sive districts. 

To bet­ter quan­ti­fy these pat­terns, we esti­mate grav­i­ty-like mod­els of for­eign invest­ment in Dubai prop­er­ties. As in the lit­er­a­ture on cross-bor­der finan­cial invest­ments (e.g., Portes and Rey (2005) and Lane and Milesi-Ferretti (2008)), we find a sta­tis­ti­cal­ly sig­nif­i­cant and eco­nom­i­cal­ly large effect of dis­tance and of the size of invest­ing coun­tries on the own­er­ship of Dubai real estate. There is also a sig­nif­i­cant pos­i­tive cor­re­la­tion between real estate held in Dubai and finan­cial assets held in Switzerland, the largest off­shore finan­cial wealth cen­ter, even after con­trol­ling for grav­i­ty-type vari­ables. The most notable excep­tions are Iran, Iraq, and India, which hold large amounts of Dubai real estate but com­par­a­tive­ly lit­tle in Swiss banks. Investments in Dubai prop­er­ties thus share com­mon­al­i­ties with oth­er off­shore invest­ments, although Dubai appears to be par­tic­u­lar­ly attrac­tive to neigh­bor­ing countries. 

Our third find­ing is that a num­ber of con­flict-rid­den coun­tries (e.g., Afghanistan, Syria, Yemen) and coun­tries under auto­crat­ic rule (e.g., Eritrea, Azerbaijan, and Kyrgyzstan) have large hold­ings in Dubai real estate rel­a­tive to the size of their econ­o­my, equiv­a­lent to 5%–10% of their GDP. For exam­ple, Syrian nation­als own the equiv­a­lent of 7.4% of Syria’s GDP in Dubai prop­er­ties. Our data also reveal sig­nif­i­cant own­er­ship by tax havens. Saint Kitts and Nevis, a major provider of cit­i­zen­ship by invest­ment, has by far the largest ratio of real estate in Dubai to GDP. Tax havens like the British Virgin Islands, the Cayman Islands, the Bahamas, and the Seychelles also own sig­nif­i­cant amounts, reflect­ing own­er­ship through shell com­pa­nies. Allocating these prop­er­ties to their ulti­mate ben­e­fi­cial own­ers would increase the size of Dubai prop­er­ties owned by non-haven countries. 

Fourth, the prob­a­bil­i­ty to own off­shore real estate ris­es with wealth, includ­ing with­in the very top of the wealth dis­tri­b­u­tion. To estab­lish this result, we ana­lyze the anonymized records of Norwegian own­ers of Dubai prop­er­ties matched to tax records in Norway. Because Norway has a wealth tax, the author­i­ties in this coun­try col­lect indi­vid­ual-lev­el infor­ma­tion on wealth, allow­ing us to rank own­ers of Dubai prop­er­ties in the wealth dis­tri­b­u­tion. The prob­a­bil­i­ty to own Dubai real estate ris­es with wealth all the way up to the top 0.01% of the wealth dis­tri­b­u­tion, sim­i­lar to the pat­tern found by Alstadsæter, Johannesen, and Zucman (2019) and Guyton, Langetieg, Reck, Risch, and Zucman (2021) for the own­er­ship of off­shore finan­cial assets. Moreover, about 70% of the prop­er­ties owned in Dubai by Norwegian res­i­dents were unre­port­ed to the tax author­i­ty and thus poten­tial­ly evad­ed taxation. 

Our results have impli­ca­tions for the analy­sis of finan­cial glob­al­iza­tion and for inter­na­tion­al tax coop­er­a­tion poli­cies. Because off­shore real estate typ­i­cal­ly goes unrecord­ed in offi­cial inter­na­tion­al invest­ment sta­tis­tics, the net for­eign asset posi­tion of low-income economies with siz­able hold­ings in Dubai is sig­nif­i­cant­ly larg­er than offi­cial­ly record­ed. This find­ing has impli­ca­tions for the sus­tain­abil­i­ty of the exter­nal debt of these coun­tries and for macro­eco­nom­ic mod­el­ing, as the net for­eign asset posi­tion is a key state vari­able in stan­dard open-econ­o­my macro­eco­nom­ic models.3 Second, our results sug­gest that the lack of cross-bor­der exchange of infor­ma­tion on real estate own­er­ship is an issue for tax enforce­ment, depriv­ing gov­ern­ments of income tax rev­enues (on rental income and cap­i­tal gains) and wealth tax rev­enues (for the coun­tries that tax wealth). Expanding the forms of inter­na­tion­al coop­er­a­tion that cur­rent­ly exist for finan­cial assets to real assets could help address this issue. 

The rest of this paper pro­ceeds as fol­lows. Section 2 relates our work to the lit­er­a­ture. Section 3 pro­vides back­ground and sum­ma­ry sta­tis­tics for Dubai real estate. We ana­lyze the dis­tri­b­u­tion of its own­er­ship across coun­tries in Section 4 and across wealth groups in Section 5. Section 6 concludes.

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