With housing rents and prices in the UAE continuing to increase many expatriates are considering taking the plunge and buying a home.
According to the Dubai Land Department, Indian investors spent more than Dh10.5 billion during the first half of 2014 while Britons spent another Dh5.8bn in the emirate.
Dubai started allowing foreigners to buy property back in 1999 and last month Sharjah became the latest emirate in the UAE to open up its property market to foreign investment as officials again attempt to cash in on rising demand for real estate.
But what does buying a property in the UAE really mean in the legal sense?
“In terms of the UAE laws, there is often a misunderstanding of the word ‘freehold’,” says Brent Baldwin, a partner at law firm Hadef & Partners. “Unlike some countries, the word doesn’t necessarily mean ownership of land in perpetuity as you might expect it to in the UK for example. Instead it can mean different things in different emirates so potential buyers really need to be very aware of what ownership rights they are purchasing.”
Others point out the laws in many cases are so new there has been little chance for any legal precedents to be established, making it very difficult to know how purchasing actually works in practise.
The legislation in the Northern Emirates remains generally untested and the rulers of each retain, to a large extent, control of how ownership of property within each emirate is determined,” says Shahram Safai, a partner at law firm Alfridi & Angell.
The emirate of Abu Dhabi first opened up to overseas investors in 2005. Under the law, UAE nationals have the right to own freehold property anywhere in the emirate of Abu Dhabi. Under the same law GCC nationals gained the right to own property in specifically nine designated investment zones around the city. For everyone else, the law granted the right to buy what effectively amounts to a long-term lease in multi-storey developments (excluding the land itself) in designated investment zones.
Generally this means, in relation to the plot on which your unit is built, what you are actually buying is a right of usufruct – to use property belonging to another person – for a period of 99 years, even though the unit itself may be described as freehold.
“Due to these new investment projects being developed only recently, what happens after that 99 years expires hasn’t been tested yet,” says Mr Baldwin.
“Fundamentally it will depend upon applicable law at the time and the terms of the lease agreement that is in place with the underlying plot owner but its highly possible that unit owners may have to pay to extend these leases in the future. As time goes by the value of the units in that development could well start to fall as the underlying plot lease gets closer to expiry.
“Another issue is what happens if towards the end of the lease, many of the units have been vacated. Will owners want to keep maintaining the building to the same standard and will there be issues with service charge collection?” he adds.
In January the Abu Dhabi Government finally started to issue title deeds to buyers who had bought flats in Aldar and Tamouh developments. However, with a proposed Abu Dhabi property register still to be fully completed, lawyers say buyers remain without many of the rights they would enjoy in other jurisdictions.
“In Abu Dhabi, whilst the legislation clearly provides that all property rights, in the absence of registration, would be invalid and of no effect, limited property registration of properties within the Abu Dhabi freehold areas has taken place,” says Mr Safi. “In turn, this leaves purchasers of property exposed as they only have a contractual right to the property against the developer/seller rather than a registered interest in the property and the protection that such registration affords.”
Dubai
Dubai started allowing foreigners to buy property in 1999 on 99 year leases but then in May 2002, Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai, issued a decree allowing foreigners to buy property in freehold areas in perpetuity. The decree sparked the property boom in Dubai’s residential market. However, lawyers say different areas tend to offer different types of ownership with some such as Dubai Investments Park tending to offer 99-year leases while others such as Dubai Marina offer true freehold.
The Dubai system offers freehold to owners of all nationalities – meaning that as well as owning the building in perpetuity, owners also have rights over the land it is built on. However, for high-rise and multiple occupancy buildings what this actually means in practise has yet to be fully defined.
This is partly because owners associations, the legal bodies which will eventually own and manage the common parts of buildings, have yet to be granted full rights by the Dubai Government.
Freehold areas in Dubai include plots in Jebel Ali, the Palm Island projects, The World islands, Dubai Marina, Emirates Hills and Al Barsha, among others. Moreover, new areas can be created by Sheikh Mohammed on an ad hoc basis, meaning that developments selling freehold apartments can pop up in parts of the city not previously designated as freehold areas.
“The law [Law No7 of 2006] is very clear that it is the Ruler of Dubai that has the power to designate certain areas as being ‘freehold’ areas. In practice, the Ruler has designated such areas via further regulations and decrees. The important point here is that it is the Ruler only who has this power, not the Land Department,” says Duncan Pickering, a partner at law firm DLA Piper.
“In some cases, land that was not designated as freehold was marketed as freehold and then designated as such when the properties were completed. These limited examples have related to certain developments with strategic developers.”
Mr Safi adds: “In Dubai, the list of freehold or designated areas is an evolving feast.
“The list of permitted freehold areas is provided for in the Regulation 3 of 2006 on Determination of the Real Property Areas Designated for Ownership by non GCC Nationals in the Emirate of Dubai, as determined by Sheikh Mohammed. The current list of permitted freehold areas will increase as and when development continues into areas not currently subject to development. For example, certain developments in Deira, Mirdif and Um Suqueim may also be purchased by non GCC nationals. Developers will need to apply to the Dubai Land Department and ultimate approval will need to be given by His Highness and the Government.”
Moreover, lawyers say that although the law also allows foreign companies to buy property, in reality this is more complicated.
“The Dubai Land Department has a recent policy with respect to foreign companies where only Jebel Ali Free Zone foreign entities can own freehold properties in the designated areas and as such foreign companies must establish a legal presence in Jafza to own real properties in the designated areas in Dubai,” says Abdulla Khaled, an associate at the law firm Al Tamimi & Company.
Sharjah
Last month the Government of Sharjah announced that, for the first time in its history, it had passed a law enabling expatriates from any country in the world to buy property in the emirate providing they hold a UAE residence visa.
Like in Abu Dhabi, expatriates will be able to own property in the emirate in investment areas on long leases of 100 years but not land. Initially only plots will be made available to sub-developers to build apartments and villas.
The first new development to offer the long leases will be Tilal City, a 25 million square feet development on Emirates Road close to the Al Dhaid Interchange, which is being developed by Sharjah Asset Management and Eskan Real Estate Development. “Sharjah has introduced a system allowing those not otherwise entitled to own real estate in that emirate to invest in approved projects by taking a usufruct of up to 100 years,” says Mr Baldwin.
“Once the usufruct period expires the plot returns to the underlying land owner.”
Ras Al Khaimah
The Government of Ras Al Khaimah granted freehold rights to foreigners investing in designated investment areas in 2005. Non-GCC Citizens are allowed to own property in lands developed, held or owned by RAK Investment Authority, Al Hamra Property or Rakin Co without the need to register a company in the RAK free zone. For any other areas however, non UAE nationals may only purchase units in Investment Zones subject to incorporating a company and obtaining a licence from the RAK Investment Authority. Lawyers say that freehold in RAK means purchase in perpetuity.
Umm Al Quwain
The Umm Al Quwain Government granted expatriates the right to buy property in the emirate under Law 3 of 2006 on a similar template to the Sharjah model. However, few properties have been bought under this law.
Fujairah
The last emirate not to allow any foreign investment, Fujairah has not so far introduced freehold rights for expatriates. Lawyers say that under the existing rules, non-UAE nationals may be granted ownership by Sheikh
Hamad bin Mohammed after completing authorised construction of a building.
Ajman
In 2008, Ajman introduced a new law allowing foreigners to own freehold land in the UAE emirate for the first time, Arabianbusiness.com reported, in a bid to regulate the emirate’s property sector. Non-GCC developers and buyers can own freehold land and property in designated areas.
lbarnard@thenational.ae
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