Building a better property market

New laws governing Abu Dhabi's property sectors are high on the agenda at Cityscape Dubai.

AD200810762664489AR

The laws governing the booming property market in Abu Dhabi were outlined yesterday by a lawyer during a presentation at Cityscape. Mohammed Kamal has been working closely with officials in the capital on a legal framework that experts have deemed vital to protecting people who invest in the emirate. The expected transformation will largely replicate the regulatory framework introduced in Dubai in the past two years.

The Dubai reforms, according to analysts, have enticed buyers from foreign markets who are accustomed to codes regulating the buying process and safeguarding the ownership of their home. In these troubled times, however, another school of thought exists that greater bureaucracy may hinder property investment in Abu Dhabi and the rest of the country. A tight legal framework may provide investors with the reassurance that the industry must conform to certain standards and that the ownership of their home is guaranteed under law.

But the need to comply with more complex regulations, such as the new requirement to register a building before reselling it, may deter profit-seekers buying property to make a fast buck, analysts say. According to Mr Kamal, a partner at the legal firm Al Tamimi and Company, regulations safeguarding property investments have traditionally been a "primary issue" among foreign buyers, although the threat of a price correction is now their biggest concern.

He told delegates that the capital might introduce new laws soon, although this has yet to be confirmed by the Abu Dhabi Government. "There have been considerable steps at the end of last year and this year to follow some of the examples of Dubai," he said. "I've personally been working close to the Abu Dhabi Government and I think probably by the end of this year or early next year we will see a full sweep of legislation in Abu Dhabi, similar to Dubai."

The regulations in question include a brokers law that would oblige estate agents to be certified and undergo basic training. An escrow account law that would protect property buyers' payments in accounts held independently from property developers is also anticipated. Another law is expected to clarify how buildings and communal areas in residential communities will be managed and maintained by their owners, a system known in several countries as "strata title".

Referring to the effect the tightening of property laws has had on the Dubai market, Mr Kamal said: "We're hearing concerns from our clients about the stability in the market, but one thing we can say for sure is that things are definitely moving in the right direction - and moving very quickly where regulations are concerned. "That was the primary issue for most foreign investors coming into the UAE. They were more certain about the short-term gains, but unsure and uncomfortable about the rules and regulations to support their investment."

Iseeb Rehman, the managing director of Sherwoods Property Consultants, which operated in Dubai throughout the introduction of its property laws, said: "It gives comfort to non-UAE nationals, those who have invested from overseas, that they know they can buy something, register it at the land department and know the investment is safe." But he added: "Any regulation slows the trading [of property] down in that there is less inventory available. People have to comply [with regulations] so there's less buying and selling."

Although this may deter speculators who seek to rapidly resell their purchase before the bulk of the stage payments is due, the potential reduction in the supply of property on the market may actually raise prices, he said. "How many investors will go and spend hours in the lands department when before they'd been trading off the desk? Not many. More investors will hold on to their inventory so there will be less supply on the market."

Rina Plapler, the senior executive director of FutureBrand, which yesterday revealed its Gulf Real Estate study, added: "Dubai is famous for being hassle-free, and all of a sudden there's a fair amount of requirement. "But I think the end-user appreciates knowing that their mortgage is listed, that laws are dictating who takes care of maintenance and that they can't be charged certain fees." The introduction of legislation governing Dubai's property market began in 2006 with the clarification of ownership rights for UAE and GCC nationals and foreigners.

Under the law, UAE and GCC nationals were allowed to own freehold property anywhere in Dubai, while foreigners were restricted to freehold ownership in 23 designated areas. Crucially, buyers were able to register the sale at the Dubai Land Department and, in return, receive a title deed rubber stamped by the department. Since then, the emirate has introduced several more regulations, including a law obliging property brokers to be registered, undergo basic training and to abide by a code of conduct.

In addition, escrow accounts - under which assets are held in trust by a third party - were set up to lock property buyers' payments, only being released to the project developer when certain stages of construction were reached. With limited access to the money generated from property sales, developers were placed under greater pressure to keep their projects on time. Mr Kamal said a similar system would be introduced in Abu Dhabi.

More recently, laws were passed that require all property bought off plan, as well as mortgages, to be registered at the Dubai Land Department. A strata law governing how buildings and communal areas such as swimming pools and lifts within complexes will be managed and maintained is expected to be finalised in Dubai this month and replicated in Abu Dhabi. Describing the process that a house sale in Dubai should now go through, Marwan bin Ghalita, the chief executive of Dubai's property market regulator RERA, said buyers should purchase property in an approved project being built by a developer registered at the land department. Any buyer making the transaction via an estate agent should check that the company and the individual agent have been certified by RERA.

When the buyer pays his deposit, he will receive a sales and purchase agreement. The unit and mortgage arrangements will be registered at the land department and any payments will be made into an escrow account. Once the buyer receives the keys to his home, he will receive a registered title deed from the land department. Officials from the Department of Municipal Affairs, the body mandated to piece together Abu Dhabi's property laws, have said in the past that they intend to closely follow the Dubai model. However, the department has not yet confirmed when the laws are likely to be introduced. @Email:[e-mail]