The UAE has enacted a robust legal framework that should be known to all parties selling or purchasing real property in the UAE to ensure a smooth, secure, transparent, and efficient process for either party. In this article, some of the more important aspects of legislation on property are discussed to help individuals and companies comply with legal requirements and regulations regarding real estate transactions of sales and purchases.
Foreign Ownership:
Ownership rights for foreigners are among the most important elements. The UAE only enables three categories of ownership:
- UAE Nationals and GCC Citizens: Emiratis, as well as citizens of the Gulf Cooperation Council nations, can own properties without any problems.
- Freehold Ownership: There are designated areas, mainly in Dubai and Abu Dhabi, where foreigners can own properties fully like the UAE nationals.
- Leasehold and Usufruct: In areas outside freehold zones, foreign nationals can obtain leasehold rights, being a long-term rental for a maximum period of 99 years or a usufruct right, which is described as the right to use and benefit from the property for a specified duration.
Key Legislation:
Several laws regulate property transactions within the UAE. Below are a few of the important ones:
- Federal Law No. (5) of 1985 UAE Civil Code: This sets out the general framework when it comes to property rights and transactions.
- Emirate-Specific Laws: Each Emirate promulgates its own set of laws and regulations for ownership and registration of the properties. For example, Dubai has Law No. (7) Of 2006 Concerning Land Registration and Regulation No. (3) Of 2006 Determining Areas for Ownership by Non-Nationals of Real Property in the Emirate of Dubai, whereas Law No. 19 of 2005 Concerning the Regulation of the Real Estate Sector in Abu Dhabi allows expatriates to own properties in the form of floors and apartments only, not lands.
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The Sale and Purchase Process:
The sale and purchase process is generally carried out following the procedure below:
- Appointment of a Registered Real Estate Agent: Ensure the real estate agent is land department licensed.
- Due Diligence: Studying the title deed, master plan, arrears owing, and others.
- Sale and Purchase Agreement: An agreement stating the fundamental facts of the sale – the price, schedule of payment, and date of completion.
- Payment: The general practice is payment to be made to an escrow account until the ownership is transferred.
- Registration: Finally, the property should be registered with the Land Department.
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Essential Due Diligence:
Thorough due diligence must be undertaken before one enters into an investment agreement with a property. Consider the following:
- Title Deed of the Property: Reaffirm the proprietorship of the seller and if they have pending mortgages or liens against the property.
- NOC: In certain cases, the property can need an NOC from the developer or Management Company.
- Building permits and approvals: Assurance of the permit and the necessary approvals for building work or habitation use of the property.
- Service Charges and Fees: Get to know what the monthly service charges are or maintenance fees and community fees one is supposed to pay towards the property.
- Area Master Plan: Get to know if in the future, maybe after 5 years, there will be developments in the surrounding area. It may be a rise in the resale value or let one know if he will be enjoying the home he has invested in.
- Hidden Costs: Other costs one may need to consider are, for example, registration fees; agency fees and the renovation cost.
The Sales Agreement: A Binding Contract
The sales agreement is the actual contract or written agreement which lays out all the terms and conditions thereof. It should include the following:
- Property details: It shall state the actual location, area, and amenities of the property.
- Purchase price and payment schedule: Total purchase price, setting forth the actual price agreed on and clear the terms of the payment schedule inclusive of the deadlines. The client or purchaser should be aware of the way to pay.
- Completion dates: It should indicate when the ownership gets transferred and handed over.
- Default clauses: It is always paramount to spell the result of the failure of either of the parties to comply with the agreement.
- Dispute resolution: It is used in case of disagreements. It specifies how disputes in the transfer will be resolved.
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Escrow Accounts: Secure Transactions
In UAE, like in most other countries, most of the property deals are conducted with the involvement of an escrow account to protect both the buyer and the seller. Simply put, an escrow account is a third-party holding account in which the buyer puts the consideration money or other types of money that is held until specific conditions are met and mostly until the ownership is transferred.
Registration of Property: Closing the Transaction
After all agreements are signed and payments are completed, the Property must be registered with the appropriate Land Department. The process calls for the submission of required documents, payment of registration fees, and the issuing of a title deed, which is formal proof of ownership.
Other Factors for Consideration Based on Types of Property:
Properties from the entire spectrum are available for investment in UAE, and therefore each has its own set of factors that must be considered from the legal perspective.
A few are discussed briefly here:
- Off-Plan Properties: If buying property off-plan (under construction), ensure that the developer is reputable and financially sound and check the completion date and take the terms of the sales agreement to a lawyer for a thorough check.
- Joint Ownership: If the property is purchased with joint ownership, this can be concluded by way of a joint ownership agreement that identifies the share of ownership interest, rights guarantees, and obligations of the parties concerned.
- Mortgages: Mortgages for foreigners will also be at the discretion of the bank and will depend on its policies and your complete financial condition.
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Taxes and Ongoing Costs
There is no property tax in the UAE. But, buyers will pay a one-time registration fee (registration and transfer) acting as a rule and ranges from 4% to 5% of the purchase price. Furthermore, there may be an annual service charge for maintenance, security, and amenities based on type and location.
Conclusion
An investment in UAE property can be a very satisfying experience, but the legal framework within which such transactions occur may be perceived as challenging. Knowledge of the relevant legislation, due diligence worth the name, and professional advice should stand one in good stead while investing with confidence.
Seek the help of HHS Lawyers for every UAE Property Transaction
It is vitally important to understand property dealing and all its aspects under UAE Law. We, at HHS Dubai Lawyers, have a team of experts consisting of highly experienced Real estate Lawyers in Dubai who could take you throughout the whole process without any hassles.
Call today for a consultation with one of our experienced Lawyers in Dubai, UAE, for assistance with the UAE’s Property Sale and Purchase Legislation.
