New Dubai property law comes into effect

Law number 13 of 2008, governing off plan property sales in Dubai is set to come into effect this week. The law will introduce a mandatory system of pre-registration for sales contracts at the emirate's Land Department. Any off plan sales regarding real estate units in the city that are not registered will be legally invalid.

The registration system is the next stage in the government of Dubai's efforts to increase the levels of transparency in the local real estate market, along with the introduction of a specific arbitration agency, the Real Estate Regulatory Authority (Rera), and legislative measures such as the escrow law.

These initiatives come at a time when investor confidence in both upcoming and existing projects has been shaken following a series of scandals in the local industry.

Although the system will initially be undertaken by the Land Department, the duty will eventually pass to master developers, who will be obliged to register all purchases by sub-developers.

According to an explanatory report authored by Chloe English and Alexis Waller from legal firm Clyde & Co's Real Estate department, the registration system is already up and running and will work in tandem with the current project registration system in place at Rera following the introduction of Law number 8, the escrow law.

Law number 8 declared that all developers had to be approved by Rera and have an escrow account, which all monies from investors would be paid into and would be used solely for the construction of the development.

The system also paves the way for easing in the emirate's Law number 14 of 2008, regarding mortgages, allowing investors to register against off plan projects.

Contract and purchase fees

Developers will still be obliged to pay a fee of Dhs370 per off plan unit contract when registering their site plan. The developer will not need to have taken possession of the land before registering off plan sales, registration of the concluded purchase agreement at the Land Department will be enough.

There will also be an additional 2% registration fee, payable at the split of 1% by the seller and 1% by the buyer, on all third party sales prior to the beginning of construction.

The good news for buyers is that developers will no longer be able to charge transfer fees on off plan sales.

Administrative charges will still be payable but the exact amount is currently being determined by the department. The Clyde & Co report estimates the figure at Dhs5,000 for off plan transfers and Dhs500 for completed properties.

Breach of contract

Under the new law, if buyers default on a sales contract it becomes the developer's responsibility to report the breach to the Land Department.

They will then issue a notice granting the buyer 30 days grace to comply with contractual obligations. If the issue is not resolved within the period the developer can cancel the contract and return all money paid, minus 30%, which they are allowed to keep. The new law means that the 30% is now a value of money paid by the buyer, rather than 30% of the value of the project.

In a further boost to buyers, developers will also no longer be able to claim additional money if a project is larger once completed than set out in the original contract.

If the project is smaller than specified, however, the buyer must be compensated (the size difference has yet to be specified but the report anticipates a threshold of 5% and over from the advertised area).

Restrictions on property 'flipping'

The new law is also part of the government's efforts to help curb the market speculation that has seen prices rise at fever pitch levels, and ensure that all transactions are monitored by the government rather than by individual companies.

Unfortunately, for many of the investors currently undergoing problematic handovers, the law will not retroactively govern projects that are already underway or completed - although all developments still in the off plan stage only have 60 days to register sale contracts with the Land Department.

Although some of Dubai's major developers, including powerhouses Nakheel and Emaar have set their own restrictions on the resale of off plan units, placing a hold on sales until either a set period of time has elapsed or a percentage of the contractual value has been paid, the new law does not make these restrictions mandatory across the board.