How to successfully transfer property
Should you have decided to purchase a residential or commercial property in the United Arab Emirates, we gladly support you in a number of areas:
- Preparing and revising contracts for the acquisition and sale of real estate, such as memoranda of understanding as well as sale and purchase agreements
- Coordinating with real estate agents, developers and land departments
The legal framework for selling or purchasing real estate varies from Emirate to Emirate. Below you will find an overview of the rules and regulations applicable in the Emirate of Dubai:
Acquisition of Property in the Emirate of Dubai
The local real estate market has developed into a strong economic factor in the United Arab Emirates ("UAE"). This holds true especially due to the fact that it has become the focus of interest for international investors.
Originally, only UAE nationals and nationals of other member countries of the Gulf Cooperation Council (GCC) were entitled to buy real estate in the UAE. Other citizens were only allowed to rent residential or commercial properties.
Since 2002, foreigners as well as companies held by foreigners can also acquire property in specific areas of Dubai. The necessary statutory basis for this practice, however, was only established through the Dubai Real Estate Registration Law (Law No. 7 of 2006) in 2006.
This law made the start to several new rules and regulations which were issued in the Emirate of Dubai to further govern the real estate sector. In particular, regulations were implemented which name those areas of Dubai in which foreigners are permitted to purchase property (so-called freehold areas), such as Emirates Hills, The Palm Jumeirah und Dubai Marina, as well as rules with regard to the purchase of off-plan properties and provisions regulating jointly owned property. Furthermore, the responsible authority, the Dubai Land Department, defined the rights and obligations of real estate brokers from scratch to set bounds to unfair business practices.
Following the implementation of standard procedures for property transactions in mid-2014 and the doubling of the transfer fee from 2% to 4% of the purchase price, the Dubai Land Department has adopted measures to make processes more transparent and, thus, to contain real estate speculation. These efforts have been supported by the UAE Central Bank which has tightened the rules with regard to property financing in late 2013.
Types of Property Rights
With regard to types of property rights, it has to be distinguished between freehold and long-term leasehold.
According to general understanding, a freehold title provides the most superior form of property ownership. The bearer of a freehold right is the unrestricted owner of the land and the structures built thereupon. Hence, he can freely dispose of the property, in particular by selling, mortgaging or bequeathing his asset. The only restrictions are existing laws and rights of others. The freehold right is, furthermore, not limited in time.
Long-term leasehold defines a right derived from freehold. The main difference is that the leasehold right is limited by time and subject to a superior title. In the UAE, the usual term of a long-term lease is 90 or 99 years depending on the project. Generally, the rent is a one-time payment made for the whole term at the beginning of the lease.
Eligibility to Purchase Real Estate
All individuals, regardless of their nationality, are allowed to purchase both freehold and long-term leasehold property in the Emirate of Dubai.
Up until now, the opportunities for corporate bodies to purchase real estate have been modified numerous times. Currently, merely such companies are eligible to acquire properties that are either licensed with the Dubai Department of Economic Development, one of the free zones in Dubai or alternatively registered as an offshore company with the Jebel Ali Free Zone Authority (JAFZA). In addition, each company has to provide a no objection certificate ("NOC") for the property transaction issued by its respective licensing authority which in turn needs to be recognized by the Dubai Land Department. In certain instances, such as inheritance matters, it might prove to be beneficial to purchase a property through a corporate body.
Execution of a Property Transfer
At the very beginning of the negotiations, buyers should verify the seller's ownership position without a doubt as well as the potential of purchasing a clean title without easements.
As a buyer is regularly not in contact with the seller directly but initially dealing with a broker and afterwards with a representative of the seller, he should request to be presented with the original broker card of the real estate agent as well as the original power of attorney granted to the representative and passport copies of both the representative and the seller.
In order for a real estate transaction to be performed, the parties are required to apply for a NOC from the developer of the property.
Once all necessary documents are compiled, the transfer of ownership will be handled by one of the service providers (so-called registration trustees) licensed by the Dubai Land Department. Generally, the transfer of the property can be concluded in one appointment only which ends with the issuance of the new ownership certificate, the title deed. Attention should be paid to the fact that the Dubai Land Department only accepts documents written in Arabic or papers translated into Arabic by an accredited translator.
If a party is represented by proxy, it must be taken into account that only those powers of attorney are accepted which were issued less than two years prior to the transaction date. Currently, the use of sub-powers of attorney is not outright invalid any longer. However, it increases the transfer fee from 4% to 8% of the purchase price. A real estate agent involved in the respective transaction cannot act as a representative of either party.
Payments can only be made to the seller - normally by bank guaranteed cheques (so-called manager's cheques). Has the seller already received payments from the buyer in cash or by telegraphic transfer, he is required to acknowledge receipt of these payments personally in front of the registration trustee. In these circumstances, a seller cannot be represented by another person.
The following aspects should be observed in order to ensure the success of a real estate transaction in the Emirate of Dubai:
- Thorough market analysis
- Selection of established project developers and brokers who are duly registered with the competent authorities
- Close examination of the purchase agreement and all other documents before execution
- Calculation of all current and future costs
- Payment of all monies due only into an escrow account or to the respective beneficiary
- Receipt of all relevant documents from the developer and previous owner in order to be able to subscribe to utility services and exercise potential warranty claims