U A E Buyers' Guide

United Arab Emirates (UAE)

The United Arab Emirates (UAE) was established in 1971 and consists of 7 emirates :         Abu Dhabi (the largest emirate and also the second most populous emirate and capital of UAE), Ajman, Dubai (the largest population and second largest area), Fujairah, Ras Al-Khaimah, Sharjah and Umm al-Quwain. 

Traditionally most people buying property in the UAE have bought in Dubai or Abu Dhabi , some others in Ras Al-Khaimah. Most properties for sale in the UAE have been new properties, often off-plan , however there is now a well developed "resale" market .page5image280

Q. Is the legal system in UAE the same as anywhere in the world?

A. The basics of buying freehold property in UAE are the same as anywhere else in the world. However, some emirates do not currently have in place legislation regulating off-plan properties, real estate brokers and agents, escrow accounts or the issuance of strata title. So one needs to be careful and exercise proper due diligence when purchasing property in UAE.

Q. Do you need a lawyer to help you buy in UAE?

A. It is advisable to hire a lawyer to aid with the due diligence and purchasing process, though this is not a formal requirement in UAE.

Q. Is the property you are intending to purchase located in an area where non-UAE and non- GCC nationals are permitted to purchase freehold property?

A. The UAE does not have a federal law in place regarding property ownership and registration, each emirate has its own regulations and procedures in place applicable to property ownership in their respective Emirates.

Dubai : In 2006, Dubai issued a law permitting foreigners to own freehold interest in properties in certain areas of Dubai designated by law. Most of the designated areas are well known to the general public, however your broker or lawyer will be able to assist you in determining whether the property is located in a ‘designated area’ or you could consult the Dubai Land Department website.page5image15872page6image272

Abu Dhabi  : Abu Dhabi property laws permit foreigners to acquire interests in properties located in certain areas designated by law in 2005 which are known as Investment Zones. These Investment Zones are areas of land within Abu Dhabi in which GCC and non UAE/ GCC nationals are entitled to real property rights. However, such rights specifically exclude ownership rights to land for foreigners. Abu Dhabi Municipality have announced that foreigners will now be allowed to own property in Abu Dhabi on a freehold basis in designated investment zones as opposed to leasehold arrangements with 99 -year leases. Your broker or lawyer will be able to assist you in determining whether the property is located in an Investment Zone or not. Some of the investment zones are Reem Island, Raha Beach, Al Reef, Yas Island, Saadiyat Island.

Ras Al Khaimah (RAK) : The freehold property law issued in 2005 made RAK the first emirate after Dubai to open up its freehold property sector to foreigners. The law permitted foreigners to own property in specific "investment pro- jects" provided that they establish a company in the Ras Al Khaimah Free Zone and purchase the property in the name of the company, i.e. foreign nationals were not permitted to buy directly in their individual capacity. However, amendments to the law were made in 2007 which allowed foreign nationals and corporate bodies (regardless of where they are incorporated), to own freehold title to property in projects owned by RAKIA, Al Hamra and RAKEEN, without the need to establish a company in RAK.

Ajman: Legislation issued in 2008 legalized freehold ownership of land and property for UAE and GCC citizens and companies wholly owned by them as well as to the public stock companies. In addition to this, non-GCC developers and buyers are also entitled to own a right of freehold in designated areas or usufruct, including long leases for a term of 50 years with the approval of the Ajman Ruler.

Sharjah: At present, Sharjah laws do not permit foreigners to buy freehold property in the emirate. However, foreigners may acquire leasehold interest in properties for a 99 year period.

Fujairah: There are no specific laws in Fujairah regarding property ownership in the emirate.

Umm Al Quwain : The property law issued in 2006 restricted ownership of real estate only to UAE and GCC nationals or cor- porate bodies owned by them. However, foreigners may own property in the emirate but not the land in designated investment areas. They are also entitled to benefit from the ownership of surface property on the basis of 99 year lease contracts or a 50 year musataha right.

page7image13320Surveys

It is important to have a proper and complete understanding of your rights and the legal risks involved when buying a property anywhere in the world. The same applies when buying property in the UAE especially for expatriates and overseas investors who may be unfamiliar with the local laws and market conditions. We therefore recommend that you obtain a survey. A survey would highlight any important problems that could affect the property value. If there are any defects in the property the survey will help you negotiate the price or require certain works to be carried out before the property is purchased.

POApage9image280

A POA is a written instrument whereby one party, the grantor or principal, gives authority to another party, the grantee or attorney, to act on their behalf in the proposed transaction. POAs have a big role in UAE property transactions. Not all property owners are able to put aside hours and sometimes days to finalize a transaction, so a POA is sometimes necessary.

Q. How can you issue a POA?

A. For a POA to be valid and acceptable it should be signed before a Notary Public in UAE.

Q. Can a POA be issued outside UAE?

A. Y es. However , if PO A has been issued outside UAE, it is required to be legalized up to the UAE embassy in the place of issue and further up to the Ministry of Foreign Affairs in the UAE.

Q. To whom should you issue a POA?

A. Before issuing the POA, the principal or grantor should ensure that the person being granted the POA is reliable. Preferably, it should be granted in favor of trusted relatives, friends, law firms or licensed conveyancing companies. It is always recommended to obtain legal advice at the time of drafting a POA as UAE has certain restrictions in place when it comes to use of POA in property transactions.page10image272

Inheritance and Wills

In general, inheritance in UAE is governed by the UAE Civil Code and UAE Personal Affairs Law. As per UAE laws, property rights located in the UAE which belong to a foreigner having no heir shall become vested in the UAE. The general rule in the UAE is that inheritance issues related to Muslims shall be dealt with in accordance with Sharia principles, and for others, the law of the deceased’s home country shall apply.

However, no matter what the religion or nationality of the deceased and whether he has a will or not, his inheritance and will, will only be distributed and enforced in accordance with the laws of the country of which the deceased is a national at the time of his death to an extent that it does not contradict with the UAE public order.

Though UAE Personal Affairs Law stipulates that the laws of the country of the deceased shall apply to matters regarding inheritance, UAE Civil Code provides that the law of the UAE shall apply to wills made by ex- patriates disposing of their real property located in the state and also states that inheritance of real estate will be governed by Islamic Sharia law. Ultimately, it is up to the UAE Courts to decide which law would apply, on a case by case basis.

Such being the scenario, the only practical approach towards safeguarding an expatriate’s rights over real property is by executing a will. Since UAE laws shall be applicable to Wills made by expatriates disposing of their real estate property located in the UAE, it is advisable that proper legal assistance is sought for drafting the will.

To circumvent the application of Sharia Law, alternate methods such as setting up an offshore company and purchasing the property in the name of that offshore company can also be considered.

 Mortgagespage11image288

In October 2013, the UAE Central Bank issued new set of regulations on mortgage lending. As per the new regulations, for the first property non UAE nationals are only entitled to borrow up to 75 per cent of the value for properties that are valued at AED 5 millions or less. If value of property is more than AED 5 mil- lions they shall be entitled to borrow a maximum of 65% of the value of property. In the event of a second purchase of property the maximum loan available will be 60% of the value of the property.

In case of purchase of an off-plan property, the maximum loan amount shall be 50% of the property. The reg- ulations further state that the maximum term of a mortgage shall be 25 years and the maximum age limit of a borrower at the date of last repayment due on the loan is to be 65 years (or 70 years if self employed).page12image272 

Costs 

All transactions involving sale and purchase of property require registration at the land department of the concerned emirate. The fee for such registration is 2% of the sale price. However, in 2013, in the emirate of Dubai the registration fee was increased from 2% to 4% of the sale price. In case of purchasing resale properties, an additional 1% to 2% transfer fees could apply. In addition to this, you will be required to pay the agent’s fee which is usually between 2% to 5%. In cases of mortgage, the mortgage registration fee will be around 0.25% of the mortgage value.

For off-plan properties, typically you begin by selecting the property of your choice, signing the booking form and paying an initial deposit (which is usually around 10% to 15% of the total price). You shall then be required to enter into a comprehensive sale and purchase agreement (SPA) It is advisable to have a construction linked payment plan inserted in the sale and purchase agreement rather than having the liability to make payment on specific dates to the seller. In such construction linked plans the balance of the total price is paid upon handover of the property which is then followed by registration and transfer of title deed at the Land Department of the concerned emirate. Normally, it takes around 2-3 years from booking the property to obtaining the title deed of the property in your name.

However, in case of a resale, the process is much quicker. Once your offer to purchase a property is accept- ed, the seller’s agent would provide you with the sale contract. At this stage you shall be required to pay 10% deposit which would be held by the seller’s agent. The seller shall then apply for a no objection letter from the developer of the property. Once all documentation has been done, the parties shall make an appointment and meet at the land department to finalize the process. The balance payment shall be made by you and the title of the property shall be transferred into your name. This process usually takes around 15-20 days. However, if there are mortgages/ lending from the bank involved then the process may take up to 45-50 days as bank shall conduct a valuation of the property.

Ownership 

This is one of the most important points to consider at the time of purchasing a property. Options like establishing an offshore company first and then purchasing the property in the name of that offshore company may be considered. Such an option is usually considered by investors to circumvent the application of Sharia laws. Other factors to be considered while making this decision could be taxation issues. Although UAE is tax-free, you may find that you are required to pay taxes in your home country applicable to rental income or capital gains on disposal of the property.

It is highly recommended to seek legal advice at the time of considering the best form of legal entity for purchasing real estate in UAE as different set of rules apply to different emirates. For instance, a circular in 2011 was issued by Dubai Government which placed a ban on registration of all properties in Dubai purchased in the name of an offshore company, except for those purchased in the name of offshore companies established with Jebel Ali Free Zone Authority.page13image11192page14image280

Obligations

Once the title of the property is transferred in your name, there are certain ongoing obligations which shall be required to be met on a regular basis. Some of these include:

a. Insurance: It is important to have your property as well as its contents insured. Accordingly you shall be required to pay annual premium towards such insurance.

b. Municipality Tax: Municipal tax which is a local tax which is levied in most Emirates on annual rental paid/ rental index at 5 percent for residential premises and 10 percent for commercial premises.

c. Service Charges: Once the property has been handed over you shall be required to pay service charges on an annual basis to the developer/ owner’s association (as the case may be) covering maintenance, refuse collection, etc.

d. Utilities: You shall be responsible for the payment of utility charges- water, electricity, gas, etc. on a regular basis.

Dispute Resolutionpage15image288

The dispute resolution clause is very common and forms an integral part of any sale and purchase agreement. Since any dispute arising out of or in relation to the property shall be resolved by referring to this clause it is important to have it properly and comprehensively drafted. Since various dispute resolution forums exist in UAE (courts, arbitration, special judicial committees, etc.), we recommend you to seek proper legal advice to review the contents of the dispute resolution clause in your agreement and advise you if including a particular dispute resolution forum in the agreement would be in your best interest or not depending on the emirate in which you have purchased the property and the nature of the transaction.

Key Issues

Some other important issues you need to consider at the time of purchasing Property in UAE:

Verification of developer and project registration

Before you enter into any legally binding documents with the developer, the most important initial step is to ensure that the developer and the project are registered with the competent authorities in the concerned emirate. Following are the competent authorities in UAE who are responsible for registration of real estate developers and projects in the respective emirates.

a. Dubai: The registration of developers and real estate projects in Dubai is governed by the Real Estate Regulatory Agency (RERA). It is advisable to only invest in projects which have been approved by RERA and for which the escrow account has been established.

b. Abu Dhabi: The registration of a developer in Abu Dhabi is governed by the Department of Economic Development. However, at present there are no specific laws in place dealing with off-plan sales and escrow accounts for Abu Dhabi real estate projects.

c. Sharjah: The Department of Real Estate Registration (DRER) is the authority responsible for registration of real estate projects in Sharjah. DRER is also responsible for issuing permission for the sale of units in the project.

d. Ras Al Khaimah: The registration of developers and real estate projects in Ras Al Khaimah is governed by Ras Al Khaimah Investment Authority (RAKIA) who maintains a special register called the “Register of Developers” to record names of developers licensed to carry out real estate development activities.

e. Ajman: The registration of real estate developers and projects in Ajman is governed by the Ajman Real Estate Regulatory Authority.

f. Fujairah: The property market in Fujairah is under development and any specific legislation is yet to be passed in relation to registration of developers and projects.

g. Umm Al Quwain: The Survey and the Planning Department maintains a register called the “Developer’s Register” to record names of developers who are permitted to carry out real estate developments in the emirate.

It is highly recommended to consult your lawyer or contact these concerned authorities to verify the registration of developer and project prior entering into any legally binding agreement in relation to your investment.

Confirming the establishment of Project Escrow Account

To safeguard payments made towards ‘off plan' property purchases, some emirates have introduced legislation to regulate setting up of specially managed accounts known as escrow accounts. Money paid by buyers or financiers towards properties will be deposited in a special account opened under the name of the property development in an approved bank.

a. Dubai: The law related to establishment of escrow accounts was introduced in 2007 to regulate developers and safeguard purchasers' money in respect of off-plan property purchases in Dubai. As per the requirements of this law, for each real estate project the developer is required to open a specific bank account at one of the accredited banks in the UAE and the said account will be used exclusively for the particular project.

b. Abu Dhabi: Abu Dhabi is currently finalizing escrow laws that shall regulate the sale of off plan properties.

c. Ras Al Khaimah: Ras Al Khaimah has also enforced a similar law to Dubai in 2008. Under this law, devel- opers selling off-plan units have to open a ~Guarantee Account” with the Ras Al Khaimah Investment Authority (RAKIA) and deposit finances towards project funding in an approved bank trustee account, regulated by the Real Estate Regulatory Authority (RAKIA RERA).

d. Ajman: Ajman’s Real Estate Regulatory Authority (ARRA) was established in 2008 with the authority to regulate real estate developments in Ajman. Further a decree was issued in the same year which required creation of project escrow accounts certified by ARRA.

e. Sharjah: Escrow accounts are not yet required for real estate developments in Sharjah.
f
. Fujairah: The property market in Fujairah is under development and any specific legislation is yet to be passed in relation to escrow accounts.

g. Umm Al Quwain: In 2007, a law was issued which made it mandatory for any developer wishing to sell off-plan units to apply to the Survey and Planning Department to open a guarantee account in the name of the project to be used exclusively for its construction.

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Things to look for when choosing a UAE lawyer :

Experience 

Experience in dealing with a whole range of legal issues with UAE with a highly experienced UAE legal team understanding both sets of laws and the difficulties that come when two sets of laws meet. This is particularly important when it comes to issues involving ownership, taxation and inheritance.

Language

You need a lawyer who can speak your own language, and can explain and discuss often complicated issues in terms that you understand.

Independence

Lawyer should not act for the buyer and the seller at the same time, nor have links with any Development Companies, Builders or Estate Agents. 

Members of AIPP 

The Association of International Property Professionals was set up to improve standards of professionalism in a largely unregulated overseas property market.


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