Come in Number 7
22 May 2006
The Dubai government recently issued the long-awaited real property law that contemplates foreign ownership of properties in pre-designated areas in the emirate of Dubai.
On 14 March 2006, his highness Sheikh Mohammed Bin Rashid Al Maktoum, Vice-President and Prime Minister of the United Arab Emirates (UAE) and ruler of Dubai, issued the Dubai Real Property Registration Law Number 7 in relation to freehold and leasehold ownership of property situated in the emirate of Dubai. Law Number 7 has effect from its publication in the Official Gazette.
The new law removes a number of the ambiguities regarding title and ownership and, as such, is a major development for the Dubai property market.
Encouraging foreign direct investment, particularly in the real estate sector, is high on the agenda for the UAE and other Gulf Cooperation Council (GCC) states. The UAE is a federation of seven emirates - Abu Dhabi, Dubai, Sharjah, Ras Al Khaimah, Umm Al Quain, Ajman and Fujairah - with each emirate retaining jurisdiction over land and property ownership issues.
New property laws are being introduced gradually across each of the emirates, including Abu Dhabi and now Dubai, to facilitate foreign ownership.
Foreign ownership of real property in Dubai
In Dubai many of the largest real estate projects are being undertaken by master developer companies in which the government has significant stakes, such as Emaar, Dubai Properties and Nakheel.
Law Number 7 contemplates freehold and 99-year leasehold ownership of property throughout Dubai for UAE and GCC nationals, and property within designated areas in Dubai for non-GCC nationals.
Law Number 7 will be followed by a number of new bylaws that will designate the specific areas in Dubai which may be owned by non-GCC nationals on a freehold or 99-year leasehold basis. These are expected to include current projects by Emaar, Dubai Properties and Nakheel.
Ownership by non-GCC nationals outside these designated areas remains possible. However, purchasers are for the moment unable to register ownership interests in such properties at the Dubai Lands Department (DLD); their chain of ownership will be via personal, contractual rights against the developer/seller.
Dubai Lands Department
Eventually the introduction of Law Number 7 should result in the ownership of all properties in Dubai being registered with the DLD. The DLD will be responsible for, inter alia, documenting property ownership and other interests, and its records will be conclusive evidence against all parties alleging an interest or right in a property. Although the DLD has existed for a number of years, the introduction of Law Number 7 should see it taking on a wider role.
Previously, properties were generally registered with the DLD in the names of the developers and not in the name of purchasers within the development. Expatriates in Dubai who have already purchased properties should now be able to register ownership directly, evidenced by a title certificate.
Emaar, Dubai Properties and Nakheel are expected to secure permission from the government of Dubai to start the registration process shortly. Before registration is completed, owners and lenders will continue to rely on the purchase contract, which is backed by a government guarantee, to govern their ownership. Where property is still under construction, an 'off-plan' purchaser is treated as having no registrable property right. However, it may be possible to note the purchaser's interests against the title of the developer.
New bylaws are awaited that will determine the registration fees, transfer fees and applicable procedures to be implemented by the DLD. Current transfer fees are in the region of 1.5 per cent (payable by the purchaser) and 0.5 per cent (payable by the vendor).
Although Law Number 7 does not deal in detail with the registration of mortgages or charges, it does provide that all encumbrances, undertakings and liabilities relating to real property must be stated on the register. At this embryonic stage, it is not entirely clear how priority issues may be dealt with by the DLD.
Problems may arise if, for example, a mortgagee's interest has not been registered and the property is then sold to a purchaser without notice. The register entry at the Lands Department is to be considered conclusive evidence of all who have an interest in the property, so the consequences for a mortgagee are unclear.
A new 'strata law', which will deal with multi-owned buildings, such as an apartment tower, is currently under consideration in Dubai. It is anticipated that the strata law will deal with issues of ownership, management of common parts and rules of occupancy.
Law Number 7 deals briefly with such buildings and considers a multistorey tower to be a single property unit and therefore registered as such. However, there will also be a supplementary entry for each apartment/unit within the tower and such entry will also contain details of the owner's interest in the common parts and any relevant easements.
Increased market confidence
Law Number 7 is likely to bring a surge in investor buying and price increases as confidence in the Dubai market intensifies.
The opening up of the real estate market should continue to attract huge investments from GCC nationals as well as expatriates living in the UAE, many of whom to date have been unwilling to invest due to the uncertain ownership rights. Dubai can also expect to see a massive boost in the secondary market, with greater enthusiasm among first-time buyers.
The introduction of Law Number 7 will accelerate the emergence of a competitive mortgage market in Dubai, ultimately offering more competitive interest rates, better deals and value-added packages to potential homeowners.
2005 witnessed a dramatic increase in the number of property buyers, which in turn increased the market demand for property finance to £1.3bn. With the new law in place, the mortgage market is predicted to rise to £2bn as more international banks are expected to enter the market.
Law Number 7 provides a good framework for a strong, transparent legal structure for real estate in Dubai.
As the new law comes into effect, with bylaws materialising and the system of registration becoming more established, investors and mortgage providers should be able to obtain the clarity that has been awaited in the Dubai real estate market for some time.
Annette Byron and Joe Huse are partners at Freshfields Bruckhaus Deringer