Property Weekly Analysis: Regulating the middlemen

Property Weekly AnalysisThe new law raises the competitiveness of Abu Dhabi’s real estate market l Shutterstock

Abu Dhabi Municipality has started to issue licences last month to real estate professionals and companies under its new real estate law, which now makes it compulsory for brokers to be registered with the Abu Dhabi Municipality (ADM). The new law provides clear guidelines for real estate consultants and brokers and covers the entire breadth of activities of professionals in the industry.

Ahmed Odeh, Legal consultant — Head of Legal Operations at MIO Law Firm, tells PW, “Law No. 3 of 2015 concerning the Regulation of Real Estate Sector in the Emirate of Abu Dhabi makes it compulsory for brokers to be regulated by the Abu Dhabi Municipality [ADM], [which] shall be responsible for issuing real estate licences for brokers and their employees.” Odeh says any broker caught in violation of the law shall be penalised by imprisonment of up to six months and a fine of Dh50,000-Dh200,000.

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The industry has gone through phenomenal growth over the last 10 years, at a pace rarely seen globally,” says David Dudley, Head of Abu Dhabi office and International Director of JLL Middle East and North Africa. “Both the quantum and quality of real estate has evolved at a very fast pace, and commensurate with that has been the need to improve standards of real estate and construction service delivery, with international firms building their footprint in a big way, bringing in global best practice and adapting this to the local market environment.”

The law clearly lays down the rights and duties of real estate brokers in any sales or lease transactions. The law stipulates that a broker must sign a contract approved by the ADM and the agreement must be entered in the Real Estate Development Register before the broker receives any money from the client. Brokers must also set up a guarantee account, where a broker contracted to market a real estate development shall deposit payments for the real estate unit. “It shall not be permissible for the broker to deposit such amount in his own account or deduct his commission form the price before depositing it in the project’s guarantee account. Any agreement otherwise shall be null and void,” says Odeh.

The law also takes into account conflict of interest. Odeh says, “It shall not be permissible for the broker to represent more than one party in the same transaction.” However, he says it is permissible for two brokers or a broker’s employees at the same office or company to represent more than one party separately in the same transaction, provided the parties know and approve that the broker is representing more than one party in the same transaction.

There is also now mandatory training, adherence to a code of ethics and the use of standardised brokerage agreements under the new law. “There are similar requirements for valuations and building measurement, including mandatory training and registration,” says Dudley. “They are all positive steps for the real estate sector — in setting minimum standards and protecting consumers and investors against bad practice.”

Local laws
The law applies to brokers operating in Abu Dhabi and dealing with properties in the emirate. “There are no federal laws affecting real estate brokers as this is a matter that is subject to the independent jurisdictions of each emirate,” says Odeh.

“Each emirate has the full authority to regulate and govern the profession of realtors. As such, it is their right to promulgate laws and regulations that will regulate those activities. For example, the Law No. 85 of 2006 concerning Real Estate Brokers’ Register only affects brokers in Dubai, whereas Law No. 3 of 2015 concerning the Regulation of Real Estate Sector in the Emirate of Abu Dhabi only affects brokers in Abu Dhabi.”

The best professional training reflects local realities and is responsive to local needs. In February, the Department of Municipal Affairs (DMA) and Abu Dhabi Centre for Technical and Vocational Education and Training (ACTVET) launched a Vocational Training Programme for real estate practitioners in Abu Dhabi.

The cooperation agreement calls for the development of tailor-made tra ining programmes that will uplift the abilities and skills of individuals working in this sector. The specialised training programmes are conducted within two to seven days, in accordance with the duties and rights set by the law for licensees in the emirate’s real estate sector.

Mubarak Saeed Al Shamsi, Director General of ACTVET, said the centre prepares the training programmes, which are approved by the National Qualifications Authority. The training programme will be mandatory for all individuals working in the real estate sector, such as developers, brokers, middlemen, auctioneers, assessors, surveyors and property.

Yousef Al Kuwaiti, Director of Regulations, Land and Real Estate Registration at the DMA, says the new law stipulates a grace period of 90 days to redress issues of individuals working in the real estate sector.

Khalifa Mohammed Al Mazroui, Undersecretary of the DMA, says, “Such training will empower them to identify the requirements and conditions of the new law, as well as their professional roles and responsibilities in a clear and transparent manner, [while] safeguarding their rights and the rights of other concerned parties.

“The training programme contributes to enhancing the expertise and skills of those engaged in the sector and assists them with their professional careers, which will in turn ensure the stability of the real estate market, improve services and contribute to the sustainable development of the sector.”

The training programmes also support the government’s Emiratisation initiatives in the realty industry. “The cooperation between the DMA and ACTVET will encourage more Emiratis to take up careers in the real estate sector, and motivate them to gain more skills and specialist experience needed to enhance their role and contribution to the development of this sector, which is considered a key supporter of the economic development in the emirate,” says Al Mazroui.

He says the real estate sector is vital for improving the standard of living of the emirate’s populace and in developing urban communities. A well-trained professional services workforce supports infrastructure development and an environment needed for sustained development and innovation.

In a statement, the DMA said it will soon start issuing licences for those working in the real estate sector after finishing the necessary training programmes. The training programme will ensure efficient enforcement of the new law and that workers perform their duties and responsibilities in an optimal way.

“Dubai has operated trainings for a number of years now through its training academy under the Dubai Land Department and Rera, and Abu Dhabi is now following suit under theDMA,” says Dudley. “While multinational real estate firms generally have rigorous quality control procedures operating to international standards, these new regulations will have the greatest impact on smaller local real estate firms that have had less exposure to training and best practice.”

The future
The new law is comprehensive and its implementation will go a long way in fulfilling its purpose of creating a better ecosystem for the real estate sector. Dudley says, “There’s a lot in there in the context of the current market, so I think it is necessary for the market to adjust to these new laws before others are introduced.”

It is also important to maintain the right balance between protecting stakeholders and allowing the economics of supply and demand to shape the market. Says Dudley, “In our view, it is extremely important to strike the right balance between regulating the market and allowing market forces to freely operate.”

The new law also introduces greater regulation of developers, which will have an impact on supply growth. However, while this will help reduce oversupply in the current period of weaker demand and will provide welcome protection to off-plan purchasers, it is also very important that the market does not become overly regulated.

“A key area where it will be important to get the right balance is the regulation of developers. Too much development control will constrain supply growth. The key will be to maintain healthy vacancy rates to keep rents and prices competitive and drive demand growth.

New broker regulations

• Brokers are required to use template brokerage agreements drafted by the Department of Municipal Affairs (DMA)
• Brokers are required to adhere to a code of ethics set by the DMA.
• A broker’s registration number should be presented in all correspondence, announcements, documents and business cards. The registration number should be posted in a visible location in the office.

Ethics in the industry

While professionals working in the real estate sector such as real estate brokers, agents and consultants are answerable to government authorities, they must also adhere to a codes of ethics for the industry. This is crucial as according to JLL’s global real estate transparency index, Abu Dhabi, Dubai and the rest of the UAE are seen as “semi-transparent” markets.

“The new laws will provide a better regulated market which, over the longer term, will help improve Abu Dhabi’s attractiveness to investors,” says David Dudley, Head of Abu Dhabi Office, JLL Mena. “[It is] similar to regulations we have seen in other markets.”

Dudley says the UAE property markets are “in the middle of the league table along with the likes of Russia, India and China. On the other hand, the most transparent markets [such as the UK, US and Australia] tend to have much larger institutional transaction volumes with real estate investments trading at considerably lower yields, reflecting a lower risk profile.”

In a more transparent market such as the US, a code of ethics for realtors, for instance, specifies many duties vis-à-vis their relationship with the client, the other party, the society and the general public. The code of ethics developed by a professional association is in addition to any government regulations and laws that are applicable to the sector.

Under the code of ethics, realtors undertake that in attempting to secure a listing, they shall not deliberately mislead the owner. Furthermore, they shall not provide professional services concerning a property where they have a present or contemplated interest, unless such interest is specifically disclosed to all affected parties.

Source: Shalini Seth, Special to Property WeeklyPW

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