Updated Commentary on the New Abu Dhabi Real Estate Law

I published an article here back in November but since then have been reading all the commentary I can on the new law (which came into effect on 1 January 2016) and so thought I’d update it. This was picked up by the National and publishedhere as few weeks ago. See our Blog here.

The much awaited new real estate law ”No. (3) of 2015 Regulating Real Estate Sector in the Emirate of Abu Dhabi” has now been published, and will take effect as of January 2016. This law is mostly good news for the man on the street but as with everything in the UAE we will have to see how it is implemented. Here are 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 implementing the 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. Let us hope its regulations (when published) come with some real teeth to dissuade the sharp practices that are still common throughout the Emirate. The DMA to date has been slow to act and is still recruiting.

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. Most are predicting this will not be ready until the end of 2016, if then.

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. Developers are likely to keep charging until the DMA is ready to take over registering property on their own register.

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.

Off-plan Sales – A developer will now not be allowed to sell units off-plan unless 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 prescribed 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.

Ben Crompton is the Managing Partner of Crompton Partners Estate Agents LLC in Abu Dhabi. Follow him on twitter @benbcrompton