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The much-awaited law No. 3 of 2015 Regulating Real Estate Sector in the Emirate of Abu Dhabi, which took effect in January, is good news for buyers and sellers in the emirate, but as with everything in the UAE we will have to see how it is implemented. Here is a selection of the most interesting bits for residential buyers and sellers in the investment zones.
No new rent cap
It had been anticipated that this law would introduce some sort of rent cap or calculator and there was much speculation as to how it would work. However, it isn’t in this law, so rents will continue to be set by landlords as the market will allow. This is good for investors, who will continue to be able to set rents at the market rate, and is an advantage for investing in Abu Dhabi over Dubai where landlords are constrained by the Real Estate Regulatory Agency’s (Rera) rent calculator, which prescribes the maximum rent increase.
New property regulator
Abu Dhabi’s Department of Municipal Affairs (DMA) has been tasked with regulating the real estate sector in Abu Dhabi. The DMA’s responsibilities will include implementing the law, issuing licences, controlling escrow accounts and cancelling real estate projects. The DMA will now essentially perform the same function as Rera in Dubai in regulating developers, brokers and the sector as a whole. Let us hope its regulations (when published) come with some real teeth to dissuade the sharp practices that are still common throughout the emirate. Again a plus for buyers and sellers as they now have a regulatory body looking after their interests.
Real estate register
All real estate projects, off-plan sales and more all property throughout Abu Dhabi will now be on the new register. It probably won’t be searchable, but now your unit will be recorded on a central government database and it is likely you will get an official document showing you are the owner instead of just a sale and purchase agreement (SPA). Buyers and sellers will be happy to get title deeds now to prove ownership and one central register will give more certainty that a buyer is dealing with the real owner of the property.
No registration fees
The law prohibits developers from collecting registration fees from investors, and only allows developers to charge administrative fees, which must first be approved by the DMA. This means that the customary 2 per cent registration fee applicable on re-sale would be abolished, although this fee might now be payable to the DMA for you to register your property. Some developers in recent years had been charging a 3 per cent registration fee. The new regulations should make sale and purchase transactions cheaper.
The new owners associations will have constitutions, legal status, hold title to common property and be responsible for the property’s repair and maintenance. The new law even states that owners associations will have the right to apply to the courts for an order to sell the unit of an owner who is hasn’t paid the service charges. Investors should now be able to band together to lower service charges, from which some unscrupulous developers had been making profit.
A developer is no longer allowed to sell units off-plan unless it proves that it owns the land and that it has opened an escrow account for the development. There will also be a requirement for a “disclosure statement” to be attached to the SPA, which provides prescribed information on the development to ensure that purchasers are informed of all the relevant facts before buying.
To sell or market off-plan units, a developer has to set up an escrow account. The proceeds from off-plan sales will need to be paid into this account and can only be taken out in stages to fund the project’s construction. Buyers purchasing off-plan can now be sure that their purchase monies will go towards the project, instead of being used as the developer sees fit.
The DMA may fine developers to compensate purchasers where the developer is delayed beyond six months. Importantly, this may apply to existing developments depending on the stage of completion. The new law also includes provisions for the cancellation of projects or appointment of a new developer where there is significant delay. Cancellation would entail the return of monies held in the escrow account to the buyers. This again also applies to existing projects unless the building has reached at least 50 per cent completion. Buyers can now have confidence that if their project doesn’t materialise, they will be refunded their investment.
There will now be an express 10-year liability for developers relating to fundamental structural defects in the building. This will also include a one-year defects liability period. So the law should give a great amount of confidence to investors in Abu Dhabi’s real estate market. The law is designed to protect purchases of all types of property assets, but particular focus has been placed on protecting off-plan sales, which has been a huge worry for buyers in the recent past given the cancelled projects of 2009. The new law should return confidence to that sector of the market in particular.
Source: Ben Crompton, Special to Property Weekly
Ben Crompton is Managing Partner of Crompton Partners Estate Agents, which he established with his brother in 2012. He earlier practised as a hedge fund and private equity fund lawyer in London and then Abu Dhabi.