The evolution of Dubai real estate laws

Dubai Real Estate LawsHassan Elhais, Senior Partner, Al Rowaad Advocates & Legal Consultancy

It was in 1999 when the Dubai property market was opened to foreigners.

Since then, the real estate industry has seen many legislation introduced to boost the confidence of homeowners and investors and prevent the recurrence of the property crash of 2008.

Hassan Elhais, Senior Partner at Al Rowaad Advocates & Legal Consultancy, highlights some of the key legal measures introduced over the years.

Rent cap

I believe that all legislation since 2006 have boosted the confidence of homeowners in Dubai.

However, the amendments in the tenancy law, Decree 43/2013, have been a landmark legislation that encouraged investors to invest and make profit while renting out their properties without interfering on the rights of the tenants.

The new decree provided a cap on rental increase upon the renewal of the tenancy lease.

The increase is now dependent on the rental index of a particular area which is brought out by the Real Estate Regulatory Agency (RERA).

The layered structure of the new rent cap gives a more realistic measure of the market values and prevents landlords from exploiting the tenants by hiking their rents.

For example, if the existing rent is less than 10 per cent below the average market rental rate (according to the rental index), no rent increase is permitted during the renewal. If the existing rent is more than 40 per cent below the average market rental rate, a maximum of 20 per cent rent increase is permitted.

Escrow law and off-plan properties

The escrow law introduced in 2007 is an effective safeguard for investors if applied in a proper way.

According to the existing legislation, an escrow account or a guarantee account will be opened by the developer of a real estate project.

All the money collected by the developer from the homeowners and the financiers of the project will be deposited in this account, and this money can be used only for the purposes of constructing the real estate project.

Money from the escrow account can be used to make payments for the land, contractors, consultants and marketing-related activities for the specific project.

However, not all expenses spent by the developer of the project can be paid from the escrow account. Only 5 per cent of the total sales amount can be used for marketing the project.

A bank or a financial institution referred to as an account trustee can be authorised by the Dubai Land Department (DLD) to manage the guarantee account.

The account trustee must provide the DLD with statements of the revenues and expenses of the guarantee account on a regular basis.

The department may request the account trustee to provide it with information and data at any time.

The depositors or their representatives may examine their account records and request copies and the representatives of the official authorities may examine the records and obtain copies.

In most cases, homeowners do not have the legal knowledge to find out if the money they have paid to the developer has been deposited in the escrow account.

Inheritance law

The new Wills and Probate Registry at Dubai International Financial Centre (DIFC), which is still under discussion, will make it possible for non-Muslim expatriates who own properties in Dubai to register their will.

This allows them to transfer their assets to anyone according to their wishes and will not be guided by the Shariah laws.

It is another big step to boost investment in the real estate sector.

Previously, we have noted that there were many investors who were unsure about who would inherit their assets after their deaths.

However, the law may face some problems if applied in other emirates, barring Dubai.

This can be solved once the courts of Dubai, other than the DIFC, issue execution orders.

On purchasing a commercial property

When buying a freehold commercial property, check the reputation of the developer and its track record of finishing projects on time. Ensure the handover date is fixed. Study the sales and purchase agreement (SPA), ensuring your allotted area is mentioned and you are entitled to use the common areas. Make sure the developer does not expand the reasons of “force majeure” (frees the developer from liability when an event beyond its control prevents it from fulfilling its obligations) in the SPA to give it the right to delay the project. Check if the property has the infrastructure needed to conduct your business.

Source: S. Dhar, Special to Freehold

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