FalconZ Articles

The Law No. 14 of August 2008 or the Mortgage Law as it is more popularly called, signals a strong commitment by the Government of Dubai to better standardize its real estate sector and, safeguard the rights of lenders as well as buyers. The move is being perceived as a step in the right direction to clean up the system, bestowing more credibility and sustainability to the property market and home finance industry. It, in fact, augurs well for serious investors on the lookout for credible short-term as well as long-term gains, effectively ending myopic investment patterns and trends initiated by speculators.

How does Law No. 14 protect investors?

The new law requires mortgages taken out on properties in Dubai to be sold by registered financial institutions, and be insured. For an investor this provision offers protection against general risk.

How does Law No. 14 operate?

Mortgages, like real estate transfers become effective when they are registered at the Land Department, because then, they can be properly regulated and recorded. Law No. 14 stipulates that mortgage contracts be registered with the Dubai Land Department, specifying the following details:
• Value of the property
• Amount of debt
• Term or duration of mortgage
• Names and addresses of the mortgager-borrower and
mortgage-lender

A “mortgagee annotation” is then made to the letter and forms part of the Land Department Register.

“If the borrower defaults on his mortgage, the lender must serve him a notarized notice before proceeding to sell the property, by way of public auction after making an application to the execution judge.”

Benefits

1) A major advantage of the Mortgage Law is that henceforth real estate borrowing activity will be secure and transparent. Mortgage lenders would obtain priority over unsecured lenders in the case of enforcement.

2) The borrower could delay an enforcement process for a maximum of 60 days if he/she can convince the execution judge that they can discharge the debt within that period and that a sale of the property causes serious damage to the borrower. Both of these conditions must be met to the satisfaction of the execution judge. This protects both lenders, providing them with the power to act quickly on defaulting debt besides
offering a safety net for borrowers.

We anticipate similar laws by Dubai government in the near future to strengthen its property legal framework. The high fuel prices and resultant GDP growth have generated impressive developmental activity in the region leading to an increased inflow of foreign workers. According to a report by Dubai World’s Statistics Department, Dubai’s direct foreign trade in 2008 recorded a first-half jump by Dh104.4 billion (around $28.4 billion), to reach Dh296.6 billion (around $80.8 billion), compared to Dh192.2 billion ($52.3 billion) achieved last year during the same period.

To accommodate overseas workers, sectors like real estate and construction have to evolve and develop continually; the recent corruption investigations into the operations of leading property developers in the region and the bolstering of immigration rules are a clear indication that the Government is indeed serious about raising standards of legal transparency and residents’ rights in the region.

Property Factbox

Documents required for registering properties purchased from developers in Dubai:

Individuals:

» Original ownership OR THE CONTRACT certificate issued for the developer

» A copy of attested contract between the developer and purchaser, to be attached with a copy of master
community declaration, and articles of association of landlords’ societies (if any)

» A letter issued from the developer, to register the property in the name of purchaser stating his full name
as in identifications

» A copy of valid passport and a copy of national id card for local nationals

» In case of submitting the application through agent, a copy of a duly attested power of attorney stating
clearly the powers conferred on the attorney to purchase/sell the property and register the same at the
department in the name of the purchaser, should be attached to the said application

Local companies:

» Original ownership certificate issued for the developer

» An attested copy of contract performed between the developer and the purchaser to be attached with a
copy of master community declaration and articles of association of landlords’ societies (if any)

» A letter issued from the developer, to register the property in the name of the company

» A copy of the trade license

» Duly attested copies of the memorandum of association and articles of association of the company

» A copy of a decision issued from the competent administrative authority in the company concerning purchase sale of the property

» A duly attested power of attorney performed by company granting clearly the attorney full powers to
purchase/sell the property and register the same at department of lands and properties in the name of the company

» A certificate including names of partners, their nationalities and their shares in the company’s capital

» Copies of partners’ passports along with the copies of national id card for local nationals
(Source: RERA)

According to a study by the International Monetary Fund (IMF), inflation in the UAE, estimated
at 11 per cent in 2007, is set to drop to 9 per cent in 2008. The IMF’s forecast of an easing of
inflation came as economists warned of a 3 per cent surge in inflation across the GCC in 2008.
The rising inflation in the UAE is mainly due to a weakening US Dollar to which the UAE Dirham
is pegged against. A Dirham-Dollar peg means the region has limited ways to control inflation
as central banks follow the monetary policy of the United States, where the Federal Reserve
has slashed interest rates since the global credit bubble popped last year.
Read the rest of this entry »

Buying Off Plan

Most purchasers choose to buy off–plan by paying a deposit and then by structured payments through to completion.
Payment schedules can range from increments of 10% up to 20%. It is at the discretion of the developer how they structure it.

The benefit of buying off-plan is that re-sales command relatively high premiums therefore reducing any profit margin in the investment considerably.

Who Can Buy?

Any investor, overseas or resident, can purchase in Dubai’s luxury property developments.

Home Financing

If you are looking for home financing options in Dubai, most developers offer finance packages. However, Tamweel is certainly one of the best options. Tamweel offer a wide range of products for you to choose from. Tamweel finance properties that are ready to move into, as well as those that are under construction. They will even pre-approve your loan before you start looking so that you will know exactly what your budget is. In addition, Tamweel offer you the option of owning the property outright, or leasing it from them with an unconditional offer to own it at the end of the lease period - whatever suits you better. All of their products have been designed keeping your individual needs in view, especially the need for stability and peace of mind, and that is what makes us sure that they have a solution that is just right for you.

Payment Terms

In general, a deposit representing 10% of the buying price is required at the contract-signing stage for all new development properties. This is followed by what are known as stage payments that are made at regular intervals through to completion. Contact us for project-specific details.

Bank Accounts

Buyers do not need a local bank account to arrange purchases, though these can easily be arranged through our partners in Dubai.

Appreciation

Property prices in Dubai have experienced considerable growth, and are forecast to remain this way for some time. This can be clearly seen if comparing current prices with those of 6 months ago. Like all investments, however, property prices can go down as well as up.

To Buy on the Secondary Market or the Resale Market:

If during the construction stage of a property a second party wishes to purchase the property from the owner then the process is straight forward.

1. The buyer pays the owner an agreed sum which includes those payments the owner has already made to the developer and any premium applied by the owner.

2. Exchange of contracts with owner at the developers head office usually within two week period.

3. The developer will then charge a percentage of the original price of the property (typically between 2% to 7%) to reissue the PSA with a new name on it and update their title records. This must be done either in person or with the buyer’s authorised representative. The whole process takes a matter of minutes.

4. Contract re-issued in buyers name - there is no legal representation for either party or any stamp duty implications.

5. The buyer will then continue to pay the remaining instalments to the developer as laid out in the PSA.

6. Commission, typically 2 to 3% is paid to the agent.

The transfer fee is paid by the purchaser.

What exactly is freehold in Dubai?

Purchasing a freehold property in Dubai now means that you own the property forever or until you decide to sell it. You are allowed to pass this property to your family for example, and they enjoy the same level of ownership as you do.

Most important for investors, your resale rights are guaranteed, as is your freedom to rent out your property to a third party, though some restrictions apply to individual developments.

You should note that although these are freehold properties, some conditions on their owners apply, because they are "private community" developments. These conditions will restrict what owners can do with their properties, and oblige them to maintain their properties to certain standards, according to the themes and quality of the communities.

When buying an apartment, the nature of ownership is different from that of a villa, because an apartment is a unit in a building. These are normally classed as "common hold". Sale agreements for apartments do, however, usually warrant effective full ownership of the unit, subject to restrictions applying to the building, such as renting out the unit, and making modifications.

Where can you buy freehold properties?

Most property developers in Dubai offer freehold, but so far most of the freehold developments have mostly been limited to the Sheikh Zayed Road, and the area of Jumeirah (including Palm Island). However, exceptions to this include the Arabian Ranches and Emaar Towers in downtown Diera. Other future developments include Nakheel’s International City project.

What about buying in other emirates?

So far, the UAE as a whole does not have laws regarding the sale of freehold property to non-GCC nationals. Each emirate makes its own property laws, as Dubai has done. Recently Abu Dhabi announced the availability of freehold, limited to "surface rights" for non-GCC nationals in the Al Raha beach area, outside the main city limits. Ras Al Khaimah, in the north, has created a similar development. The other emirates are expected to follow suit, but there have been no definitive announcements at the federal level yet.

Are property owners eligible for residence visas in the UAE?

Many developments give you the opportunity to gain a residency visa through purchase.

Property Law

The freehold property market in Dubai really started in 1998 when the Dubai Marina project was launched. At that time there was no freehold property law, and villas were sold "leasehold", on 99 year leases. In 2002 a decree was issued by the Dubai government granting freehold rights to non-GCC nationals (The GCC is the Gulf Cooperation Council, comprising Saudi Arabia, Kuwait, the UAE, Oman, Bahrain and Qatar.) This provided the impetus that has led to the size and dynamism of Dubai’s property market today.

Dubai Residency

The Government has stated that a special category of residence visa will be granted to people buying ‘foreigner’s’ properties. The visa will allow a purchaser to live, but not work in Dubai . The arrangements for granting, and the terms of the visa, are at this time unclear.

Only the Government of the UAE can grant these visas, not the developer or estate agent.

Finance Your Property

As a foreigner buying property in the UAE, we recommend obtaining the mortgage through a UAE bank for two very important reasons:
1. First, Gulfbusinessguide.com can help you with agencies in daily communication with several of the largest financial institutions in Europe and can therefore help you receive the credit you are looking for (which you could not necessarily obtain by your own devices).

Read the rest of this entry »