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Real Estate Investment Rules Dubai

Dubai is indeed a proverbial goldmine for investors, especially in the property sector. Of course, like any country, there are laws that govern UAE’s real estate sector. In Dubai’s case, investors should remember that the country is still relatively young and large-scale real estate development only started taking off about 10 years ago when the idea of a ‘freehold” was passed into law. Now with property laws in Dubai meeting up with international standards, no investor needs to shy away from this lucrative market.

Here in this article, we will briefly explain the most important laws governing property ownership and real estate investment in Dubai.

 

REAL ESTATE OWNERSHIP

1. Freehold

Freehold ownership means that a person has complete and comprehensive right over a particular property in Dubai. It is akin to the common law concept of freehold. Such ownership in Dubai is subject to certain limitations based on nationality.
Freehold ownership of property in Dubai is permitted for UAE nationals, other GCC (Gulf Cooperation Council) nationals, companies wholly owned by GCC nationals and public joint stock companies (as designated under UAE law).
From 2006 onwards, foreign ownership of real estate in Dubai became possible in areas of
Dubai designated by the Ruler of Dubai.
All real estate rights must be registered at the Dubai Land Department (“DLD”) in order to be valid.

2. Usufructs And Musataha (“Bot Agreements”) Interests

Usufruct and musataha properties are those that are limited in time. They are similar to leasehold properties, except that they constitute real rights rather than personal rights. A usufruct right is a right to exploit the property of another.
Registration of usufructs must be completed at the DLD.
Non-GCC nationals may get usufruct rights for up to 99 years within certain Designated Areas. A musataha may be granted for the development of land for a term of up to 50 years. GCC nationals can acquire usufruct rights on any property throughout the Emirate.

3. Leasehold

Leasehold can be acquired by GCC nationals all over Dubai. Non-GCC nationals can acquire short-term leases throughout Dubai; however, ‘long’ leases may only be acquired in Designated Areas. UAE law treats any lease of ten years or more as a long lease. All leases must be registered with the relevant authorities.

4. Granted Land

Granted land is a type of ownership where the Ruler of Dubai ‘gifts’ a plot of land in the Emirate to a UAE national at no cost. The purpose of the gift may be commercial or residential. Ownership of granted land is considered unlimited in time; however the gift may be revoked at any time as per the direction of the Ruler.
Granted land is subject to restrictions. The individual to whom the land has been gifted cannot dispose of the land or lease the land for a period that exceeds three years without special permission from the Ruler.
Commercial land (including industrial) can be ‘converted’ from a granted title to a ‘private’ title (i.e. freehold title) via an application to the DLD and payment of a fee of 30% of the then-current market value of the land.

5. Jointly Owned Property

A jointly owned property law exists in Dubai to deal with common areas in a condominium or mixed-use property development. This law states that each owner of a unit within a development owns a share of the common area proportionate to the size of the unit owned and pays a service or community charge in such proportion for the maintenance of the common parts.
Each owner participates in a homeowners’ association, which is responsible for managing the upkeep of the development.

 

ACQUISITION OF OWNERSHIP

1. Formal Requirements

All transfers of ownership of real estate in Dubai must be registered at the DLD. All parties involved must attend. Any party that is not able to attend in person may appoint a representative.
All parties must sign the relevant DLD forms. Additional documents will be required by the DLD depending on the nature of the transaction.

2. Registration Fees

The DLD requires fees to be paid in the case of transfers of ownership and the grant of Long Leases. In each case, the law provides for such fees to be equally split between the seller and purchaser unless otherwise agreed. It is commonly agreed in the market that the purchaser will pay the entire amount of fees.
Generally, the registration fee for a sale and purchase transaction is 4% of the value of the property. If the DLD feels that the sale and purchase agreement does not accurately reflect the market value of the property being bought, it is entitled to determine the value itself and calculate the corrected fee.
If a mortgage is being granted against the property, the DLD will charge a fee of 0.25% of the loan for registering the mortgage; they will also charge a nominal ‘knowledge fee’.

3. Asset Deals

In the case of a deal that involves an asset which has not been fully inspected and evaluated, the above formalities must be observed and the fees applicable must still be paid at the DLD or at a trustee office. Commonly, a purchaser will request a copy of the title deed and a due-diligence on materials from the seller. Once due diligence has been carried out, the parties will enter into a sale and purchase agreement which will be drafted and negotiated between lawyers or by a broker.

4. Share Deals (Purchase Of Property Owning Company)

Real estate may only be owned by GCC nationals outside of Designated areas. Within Designated Areas, the law permits foreigners and companies wholly owned by them to hold real estate also if the company is either a limited liability company registered in the UAE (“LLC”) or a Jebel Ali FreeZone Authority (“JAFZA”) Offshore Company (“JAFZAOffshore Company”).

5. Public Auctions

Real estate may be sold by public auction in the event that a lender enforces its mortgage over such a property. The mortgage law states that a lender must give the borrower 30 days’ notice of its intention to commence execution of such proceedings. If the mortgage is not paid within this 30 day time period then the lender has the right to sell the house through a public auction.
This is the only method of mortgage enforcement available in Dubai. It is not possible for a lender to instead acquire ownership of a property and deal with it thereafter.
Once a property has been sold via public auction the proceeds are first applied to the DLD public auction fees. Only then can they be used to settle the outstanding amount due to the lender. If any amount remains, it must be returned to the borrower.

 

OTHER RIGHTS TO PROPERTY

1. Mortgages and charges

Mortgages can be created over real estate in Dubai in favour of UAE licensed banks and financial institutions only. These institutions must be registered at DLD.
In order for a mortgage to be valid, a mortgage contract must contain details of the value of the property, the value of the debt, the mortgage term and the full details of the lender, the borrower and any guarantor. Following registration of the mortgage, the borrower cannot dispose of the property without the consent of the mortgage authority.

2. Easements

An easement is the permission to use land owned by someone else for a specific purpose. In the UAE, an easement must be agreed upon in writing and in accordance with custom and practice. Rights of easements can end upon the expiry of the term given to it, upon the dominant and servient lands being owned by the same person or if the relevant properties no longer exist. If the benefit of an easement is not used for a period of 15 years, it is treated as having ended.
Easements are not a registrable right in Dubai and therefore any such arrangement will take effect as a personal contract.

3. Other Unregistrable Rights

Rights that are frequently found in other jurisdictions such as pre-emption rights, options and overage rights cannot be registered at DLD. Therefore, any parties wishing to enter such arrangements relating to real estate in Dubai have freedom of contract to do so, providing the local courts do not deem it to be contrary to public policy.

 

LEASES

1. Duration

In UAE the lease period of a commercial property is typically between 1 and 5 years long. Certain industries like schools and hospitals require leases for a longer period due to the nature of their business. Most residential leases last for 1 year. There is no maximum duration for a lease. However, within Designated Areas, non- GCC nationals may only be granted a lease of a maximum of 99 years.

2. Rent

In Dubai, Rent is commonly calculated on a ‘per square foot’ or ‘per square metre’ basis. Unlike in many other jurisdictions, it is fairly common to pay rent on an annual basis, although there is a slow shift in the market (and more acceptable in leases of commercial property) to pay three or four instalments of rent each year.

3. Rent Review

In Dubai, you can check the rent value of a property via the RERA rental index. The RERA rental index is an index of the average rent applicable to properties throughout Dubai.
It can be accessed online easily by entering the area and neighbourhood, selecting the type of property, the size of the property and entering the current annual rent. When this is data is added, a calculation will be made and it will tell you whether you can increase the rent of that property.

4. Operating Expenses

It is up to the parties of a lease to decide who will be responsible for the payment of utilities for a property.
In Dubai, many neighbourhoods are ‘master communities’ where property owners must pay a community service charge for the maintenance of the community.

5. Assignments

In circumstances where a tenant wishes to assign the lease to a third party and the landlord is agreeable, such arrangement takes place by way of a surrender and grant of a new lease to the third party (in which the terms may differ from the original lease).

6. Subleases

Most leases will not allow tenants to sub-let a property without the consent of the property owner. However, if a sub-lease exists with the consent of the property owner, it will expire when the lead lease expires.

7. Termination

If a lease expires and a tenant continues to occupy a property without the objection of the landlord, the lease is deemed to have been renewed for the lesser of the equivalent to the original term and 1 year.
If a party wishes to renew a lease, a 90 day notice should be must be served including details of any proposed changes to the term.

8. Sale Of Leased Property

In Dubai, should a person buy a leased property then they automatically become the landlord of that property and are now responsible for any leases on the property in question.

As we stated before, Dubai is a proverbial gold mine for property investors, so make sure you are ready with the necessary knowledge so that you can take full advantage of it and earn your money’s worth. We hope you found this article educational and that it has helped better prepare you for your future investment decisions.


Do you have questions about investments in Dubai? We want to hear from you, send a message to ahlan@iqiproperties.com or call us at +(971) 4 352 474 8 or +(971) 55 519 8233

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