CLICK BELOW FOR THE LATEST ISSUES

THE NEW ABU DHABI REAL ESTATE LAW

The New Abu Dhabi Real Estate Law

March 2016

Ben Crompton, Managing Partner of Crompton Partners Estate Agents in Abu Dhabi, gives an overview of the most important aspects of the new law for residential buyers and sellers in the emirate.

 

The much awaited new real estate law “No. (3) of 2015 Regulating Real Estate Sector in the Emirate of Abu Dhabi” (the New Law) has taken effect as of January 2016. This law is mostly good news for the man on the street however we will have to see how it is implemented. Here is a selection of the most interesting bits for residential buyers and sellers in the investment zones.

No new Rent Cap – It had been anticipated that this law would introduce some sort of rent cap or calculator as there has been much speculation as to how it might work. However if it is coming it isn’t in this law, so rents will continue to be set by landlords as the market will allow.

Abu Dhabi Municipality is the New Property Regulator – Abu Dhabi’s Department of Municipal Affairs (the DMA) has been tasked with regulating the real estate sector in Abu Dhabi. The DMA’s responsibilities will include among other things implementing the New Law, issuing licences, controlling escrow accounts and cancelling real estate projects. The DMA will now essentially perform the same function as RERA in Dubai in regulating developers, brokers and the sector as a whole. The law came into force on 1 January 2016 however to this date, the DMA has not released any clear details on how it aims to implement these regulations.

There will be a Real Estate Register – It will register all real estate projects, all off-plan sales, but more importantly all property throughout Abu Dhabi will now be on it. It probably won’t be searchable but now your unit will be recorded on a central government database and it is likely you will get an official document showing you are the owner instead of just an SPA.

No Registration Fees for Developers – The law prohibits developers from collecting registration fees from investors, and only allows developers to charge administrative fees, which must first be approved by the DMA. This means that the existing customary 2% registration fee applicable on re-sales would be abolished, although this fee might now be payable to the DMA for you to register your property. Since the implementation of the New Law the DMA is not yet able to effect these property transfers themselves, so developers are still doing them and still collecting 2% registration fee.

Owners Associations to be created – The new owners associations will have constitutions, legal status, hold title to common property and be responsible for the property’s repair and maintenance. The new law even states that owners associations will have the right to apply to the courts for an order to sell the unit of an owner who hasn’t paid their services charges. It seems the Abu Dhabi authorities have noted the difficulties owners associations face in Dubai and have specifically legislated to give them legal standing.

Off-plan Sales – A developer will now only be allowed to sell units off-plan if it proves that it owns a real estate right over the project land and that it has opened an escrow account for the development. There will also be a requirement for a “disclosure statement” to be attached to the sale and purchase agreement which provides information on the development to ensure that purchasers are informed of all the relevant facts before buying.

Escrow Accounts will be set up for Off-Plan Sales – One of the requirements for the sale and marketing of off-plan units will now include that the developer has set up an escrow account. The proceeds from off-plan sales will need to be paid into this account and only taken out in stages to fund construction.  Given the restrictions on withdrawals the developer will effectively have to self-fund (or obtain finance) for the first 20% construction works. These accounts also apply to existing projects as well, unless the building has reached at least 70% completion.

Right to terminate an Off-Plan Purchase – Off-plan purchasers can terminate their purchase of the unit in the case of “substantial prejudice.” Although certain examples are given in the law such as substantially changing the specifications contained in the Unit SPA or delivering a unit that is unusable due to fundamental defects in construction, appeals may be made to the DMA to cancel on other grounds.

Delayed Projects – The DMA may fine developers to compensate purchasers where the developer is delayed beyond six months. Importantly, this may apply to existing developments depending on the stage of completion. The new law also includes provisions for the cancellation of projects or appointment of a new developer where there is significant delay. Cancellation would entail the return of monies held in the escrow account to the buyers. This again will also applies to existing projects unless the building has reached at least 50% completion.

A New Strata Law – The New Law provides for developments to be subdivided both horizontally and vertically into units. The new law also states that there shall be a standardisation of the area measurement methodology used by developers as currently many different methodologies are used.

Building Liability For Developers – There will now be an express ten year liability for developers relating to fundamental structural defects in the building. This will also include a one-year defects liability period.

 Confidence boost for the market

In all the bulk of the New Law has been aimed at more tightly regulating the off-plan market, giving investors more confidence that their proceeds will be spent on the project and that they will be able to get their money back should things go awry. A genuine real estate register will also give buyers confidence that their ownership is not recorded only on the books of some small-time developer. Owners associations will allow landlord communities to have more say in the running of their development and ensure that they only pay service charge that have been incurred. Tighter regulation of brokers should, if implemented, dissuade some of the questionable dealing that has gone on in the past.

The New Law fortuitously coincides with the opening of the Abu Dhabi Global Market (ADGM) on Marayah Island. The ADGM has its own real estate laws and some units in the Farglory towers have already come to market. It is hoped that this new financial centre will attract money managers from around the globe whose real estate funds may be tempted to invest in the domestic market in the light of the New Law and tighter regulation.

To stay on top of the latest real estate news, subscribe to Cityscape Magazine.

Real Time Web Analytics