Abu Dhabi has finally published its much awaited property law, taking effect from January 2016, which aims to better regulate the property market in Abu Dhabi.
“Law no.3 of 2015” retains many of the current core principles governing Abu Dhabi property law – all property transactions to be registered, confirmation to procedural market practice, for instance, information required in light of mortgage registration etc.
After being in the review, consultation and drafting stage for over 7 years, the law is finally getting implemented and is a step in the right direction towards attracting more real estate investment in Abu Dhabi. Among the main provisions of this new law is the requirement for parties to take certain measures in guarding their rights while avoiding legal penalties and, in some rare cases, imprisonment and hefty fines.
The Department of Municipal Affairs (DMA) in Abu Dhabi bears the responsibility of regulating the property sector – all property laws are implemented under their umbrella, including the issuance of licenses, terminating property projects and regulating ESCROW accounts. So more or less, it performs the same function as RERA in Dubai.
The new law also prevents developers from acquiring registration fees from investors and only lets them (developers) charge administrative fees, provided it is approved by the DMA. Therefore, the traditional 2% registrations fee on resales will be done away with.
At a glance, here’s a breakdown of what the new law brings to the table:
Developers can no longer sell off-plan units unless they provide proof of ownership along with an ESCROW account for development purposes. A Disclosure Statement must now be attached with the sale/purchase agreement which provides specific information on the development. This ensures that any potential buyers or investors are well-informed on all relevant facts prior to the purchase.
There are now consequences to any delays in starting construction or failing to complete according to the proposed deadline. In this case, the DMA can cancel the development project and distribute the ESCROW amount in accordance with priorities or clauses set out in the law. In order to maintain a fine balance, the DMA might consider certain factors owing to delays which may not necessarily hold the developer accountable – for example, if a registered authority has confiscated that land on legitimate grounds where the project was scheduled to be completed.
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There are now provisions for setting up owners’ associations which includes all owners of units in multi-unit property developments. This is an independent body with legal status, constitutions and hold title to common real estate. They are also responsible for repair and maintenance.
The establishment of an owners’ association has been somewhat challenging in Dubai, by contrast. Keeping this in perspective, the DMA chairman has the discretion to issue a resolution which replaces the owners’ association with the developer/real estate project or any specialized body, to control common aspects of projects until all practicalities pertaining to running the owners’ associations are well understood.
The Owners’ association also has rights to get a court order to sell units of an owner who fails to pay service charges.
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ESCROW Accounts for Off-plan Sales
When it comes to sales and marketing of off-plan properties, developers are required to set up an ESCROW account in advance. The money made from off-plan sales will go into this account and taken out only in increments in order to finance development. Since there are restrictions on withdrawals, developers will need to self-fund for the first 20% of the developmental phase.
Such accounts also apply to existing developments, the only exception being if the building or construction has already been 70% completed.
Financing for Real Estate
Off-plan units sold off can now be mortgaged, as long as the loan is paid into the designated ESCROW account and allocated for payment of the original purchase price.
The mortgage provisions are useful in situations where a debtor fails to make payments on their installments. A bank can enforce a mortgage through a summary court once the debtor has been notified, bypassing the need to obtain a court judgment to prove that the debtor has defaulted.
These new mortgage provisions should help address issues currently faced by banks in regards to real estate financing and should enable them to lend more confidently and securely for real estate development purposes.
Bonus read: Dubai mortgage calculator
Termination of Off-plan Purchases
The new law provides more security for off-plan purchasers, who are at liberty to terminate their unit purchase in case “substantial prejudice” arises. There are specific examples of this outlined in the new law; for example, substantial changes in the unit specifications than originally agreed or delivery of a unit which is not usable due to faulty construction.
Building Liability – Developers
There’s now a 10-year liability for developers in regards to structural defects in construction. What this means is developers are liable and legally responsible for fixing construction defects that crop up even 10 years after handing them over. This also includes a one-year defect liability period.
Delayed Projects Compensation
If a development is delayed by more than 6 months, the DMA will fine developers in order to compensate the buyers. Depending on what stage of completion existing developments are in, it may also apply.
Also included are provisions for cancellation of projects or appointment of a new developer if there is a marked delay in commencement.
The changes accompanying the new Abu Dhabi Property Law mean a much more transparent framework for not just property developers but borrowers and lenders as well. Banks and financial institutions will likely be more confident in lending to real estate developers. Lenders and borrowers will be better protected while developers will not be overpromising or under-delivering.
Abu Dhabi is all set to enter a new phase of development and real estate maturity. Whether you’re a property developer, purchaser or lender, hire a professionally trained and certified UAE agent to handle all the paperwork and stay on top of your property transactions.