BUYING PROPERTY IN DUBAI
By Ashraf El Motei, Managing Partner of Motei & Associates
The endless opportunities that Dubai offers and the increasing influx of new people relocating to the emirate have substantially increased the demand for property in Dubai.
The basics of buying property in Dubai are the same as anywhere else in the world: One needs to be very careful in closing a property deal. The easiest but longest way, in terms of time, is to buy off-plan property from a developer. The process starts with signing a booking form at the developer’s office and payment of a deposit (10%-15% of the price). However, it is essential that you first ensure that the developer and the project are registered at the Dubai Land Department and that the deposit will be paid in an escrow bank account according to the applicable law.
However, buying a property on the secondary market is much quicker but there are important issues to consider. Essentially, prior to entering into binding agreements, you must ensure that: 1. the seller owns the property and has the legal capacity and authority of selling the property; and 2. the property is free from any encumbrances (i.e. tenancy right, mortgage, lien, any charge or claim).
In Dubai, every property’s broker requires individual registration through the Real Estate Regulatory Authority (RERA) and is issued a renewable Broker ID card which is required to be carried with them at all times, therefore, request your broker to provide his card for verification, and you can also confirm his registration at the Dubai Land Department website (www.dubailand.gov.ae).
Also, the whole sale transaction/ deal can be completed by a power of attorney (POA) (“wekalah”) to be issued by the buyer in favour of a third party to authorise him/ her to act on buyer’s behalf in relation to the transaction. The POA may be issued either in the UAE before a Notary Public or outside. However, if issued outside, it must be legalised up to the UAE Embassy in the place of issue and then authenticated at the Ministry of Foreign Affairs in the UAE. Due to certain restrictions on using POAs for real estate transactions, it is advisable that the content of the POA is prepared by a real estate lawyer.
FINANCE YOUR HOME
If you are looking for financing your new property, there are several banks and financial institutions that offer competitive interest rates starting from 3.45% p.a. Most banks require the applicant to be between the age group of 21 to 65 years (70 years for self-employed), having a minimum salary of AED 15,000/- per month.
As per latest UAE Central Bank regulations, for the first property, non-UAE nationals are only entitled to borrow up to 75% of the property’s value for properties that are valued at AED 5 million or less. If the value of the property is more than AED 5 million, they shall be entitled to borrow a maximum of 65%. For the second property the maximum loan will be 60% of the value of the property.
In case of purchase of an off-plan property, the maximum loan amount shall be 50% of the property. The regulations further state that the maximum term of a mortgage shall be 25 years and the maximum age limit of a borrower at the date of last repayment due on the loan is to be 65 years (or 70 years if self- employed).
Most banks offer a pre-approval facility which would help you determine your eligibility for a home loan before you decide to finalise a property.
THE PURCHASE PROCESS
For secondary market purchase, upon selection of the property, you shall be entering into a Memorandum of Understanding (MOU) with the seller. The MOU is a document that outlines the terms and conditions of the sale agreement between both parties. Normally, at the time of signing the MOU you shall be required to pay an initial deposit (usually held by the broker). It is advisable to include the following under the MOU: 1. Details of the property and seller’s capacity to sell it; 2. The total purchase price and terms of payment; 3. Time frame to close the transaction to include obtaining No Objection Certificate (NOC) from the developer and transfer of title at the Land Department; and 4. Consequences/ penalties for failure to complete the transaction.
Once the NOC has been obtained from developer, the parties shall meet at the Land Department to finalise the process. The registration fees, balance of the purchase price and broker’s fees (2%-5% of sale price) shall be paid by the buyer, unless otherwise agreed. The transfer of title usually takes around 15-20 days. However, if the purchase is subject to a bank loan, then the process may take up to 50 days as the bank shall conduct a valuation of the property.
For off-plan properties, you are required to enter into a comprehensive sale and purchase agreement (SPA) with the seller who shall ensure to have the sale recorded in the interim real estate register at the Land Department.
Once construction of the property is completed and the seller provides a completion certificate, the parties shall meet at the Land Department to finalise the property title transfer process. It is advisable to have the following included under the SPA: 1. Details of the property and seller’s capacity to transfer it to you; 2. The total purchase price and payment terms (construction progress linked payment plan is usually the case); 3. A completion date with a reasonable extension; 4. Details of the escrow bank account established for the project; 5. Consequences/ penalties in the event of failure to complete construction on time (to include your right to terminate the SPA); and 6. Dispute Resolution (although, in practice, it is common to refer to international arbitration, from experience, we believe that local courts are more suitable for such type of disputes – unless international arbitration is selected for specific reasons).
Disclaimer: The above is a general guide; a professional advice must be sought prior to embarking on a property purchase in the Emirate of Dubai. Please note that each Emirate has its own real estate regulations.
About the author:
Ashraf heads the dispute resolution practice in Motei & Associates. He specialises in general commercial and real estate litigation before local courts in the UAE, and has principal focus on international commercial arbitration. He has acted as counsel, arbitrator and co-arbitrator in numerous arbitration cases. For more inquiries on the above matter, please write to: firstname.lastname@example.org
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