Dubai property agents consider impact of legal changes

Delegates to the Dubai Property Society meeting focused on the implications of legislative changes to the emirate's real estate laws and what these mean for investors, finance providers and end users.

The meeting focused on three of the recent changes; the off plan sales law, the mortgage law and the legislation regarding property disputes, all of which were published on August 31.

Law 13, which covers the sale of off plan properties, stating that all transactions must be registered with the Dubai Land Department, also means that developers can no longer launch projects without first taking possession of the land and being granted the necessary building permits.

'Whereas previously you had some developers launching and advertising projects for sale before they had even taken possession of the land, now they will be forced to hold off,' says Lynnette Brown, a partner at law firm Al Tamimi.

'It also means that investors and end users are now confident of what they are getting for their money. Because the plans and blueprints are all approved and the land marked out there can be very little deviation in terms of changes once the project is launched.'

Fees and charges

The fee for registering property under the new law has also now been capped. Developers will no longer be able to charge transfer fees, but they will be able to charge administrative costs and the provision of a certificate of no objection.

But whereas charges could previously been levied as a percentage of the value of the property, these are now definitively capped at a maximum of Dhs5,000 - although the exact amount has yet to be decided.

Once the project is complete it will then be transferred to the full register, which can also be requested by the investor or the Land Department if the developer fails to do so. The appropriate banks will be liable for the fees for mortgage registration.

The laws provide increased stability to the market by defining set timelines for different contingencies. 'In the case of a default by the buyer, the developer can tell the Land Department, who will give the buyer 30 days to pay,' says Brown. 'If the buyer still does not pay the contract can be cancelled and the paid fees returned minus a penalty of less than 30% of the total paid.'

Dubai mortgage regulations

Mortgages can only be issued by banks that are registered in the UAE, and these must be registered with the Land Department by the end of October. This provision covers all mortgage arrangements retroactively, meaning that any current mortgage arrangement must be registered or it will be considered null and void.

'If the borrower defaults he has the right to administer the property, and has full rights as owner until the public auction,' explains Brown. 'Any clause in the contract which transferred the rights to the lender in case of default is now void.'

According to the provisions the executing judge can also give the borrower a one-off grace of period 60 days if the borrower will be able to pay in this period, or if selling before will cause the borrower 'substantial damage'.

According to Tariq Ajaz, SVP of Corporate Services at UAE lender Amlak, the UAE mortgage market is currently valued at Dhs150bn, and is set to increase by 190% over the coming years. Government estimates for the population equal 2.2 million by 2010, of which 87% will be expatriates.

'Law 14 [the mortgage law] is a positive move,' says Ajaz. 'It will help reduce speculative pressure on the real estate sector and encourage confidence for more people to move here.'


See also:
Dubai average price index - prices show continual increases
What does the global financial crisis mean for Dubai real estate?