Ludmila Yamalova: Welcome back to our existing listeners and welcome to our new listeners. This is Ludmila at Lawgical with LYLAW. We’re moving on from the subject of employment to the subject of real estate in the U.A.E.
In the upcoming several segments, we will be discussing various aspects of real estate laws and real estate practice in the U.A.E. We will touch on subjects such as investing in properties, renting properties, insuring properties, dealing with inheritance, and mortgages.
In the next segment, we’ll be talking about the U.A.E. legislative framework and, in particular, the various laws that apply to the real estate transactions. In general terms, as far as laws are concerned, there are two types of laws relating to real estate transactions. One type of law is the federal body of law that applies across all of the emirates. The other type of law is the emirate-based laws, and these are specific laws that apply to each emirate as far as their real estate sectors are concerned.
With regard to the federal laws, some of the relevant examples of what federal laws apply to real estate transactions across the U.A.E. are as follows:
- One particular law is the U.A.E. contract law that applies to, for example, sales and purchase agreements, rental agreements, and mortgage agreements.
- The other specific law that applies across the U.A.E. is relating to mortgages specifically. Those laws discuss issues such as setting parameters for mortgage eligibility, down payments, caps, loan-to-value ratio, secondary homes eligibility, and so on. One of the other aspects of the mortgage law that is particularly relevant to real estate investments is relating to foreclosures.
- The other federal law that applies to relevant real estate transactions is one relating to the penal code or the criminal code, and in particular, certain aspects of real estate transactions may give rise to criminal claims such as, for example, at least in the past, over bounced checks, and presently over unpaid, let’s say, real estate court judgments or any other type of mortgage defaults or any other contractual defaults may give rise to criminal claims.
- One other federal law that applies to real estate transactions is the one related to inheritance, and that is, in particular, inheritance as far as real estate assets are concerned. In relevant terms, there is a federal law that makes all real estate assets subject to sharia.
These are some of the examples of federal laws as far as real estate transactions are concerned.
Now more specific laws related to real estate are, in fact, emirate based. In particular, there are two categories of emirate-based laws that are of the most interest to investors and foreigners living in the U.A.E. (1) One related to ownership laws and (2) the other one related to rental laws.
With regard to ownership laws, the general legal framework in the U.A.E. is that real estate can only be owned by U.A.E. nationals. That is the general rule. Unless specific emirates provide otherwise, so that is the exception. Since 2006, the U.A.E. and the various emirates in the U.A.E. have embraced that exception and introduced various laws allowing foreign investors to own real estate in the U.A.E.
One of the more prolific examples is the emirate of Dubai. In Dubai there have been freehold laws introduced since 2006 which means that foreign investors have the legal right to own real estate outright without any limitations. That’s called the freehold laws. The way this particular area of real estate is governed in Dubai is through various decrees, and that is, the relevant branch of the Dubai government will issue a specific decree designating a specific geographic area as a freehold area. Over the years there have been more of these decrees increasing the number of geographic areas where investors can own land in the U.A.E. and that includes both land and properties or villas or structures.
In other emirates, the more typical scenario in terms of ownership of real estate is done through what’s called a leasehold versus a freehold. A leasehold in most emirates is limited or is set to be for 99 years. For example, most geographic areas where investors can buy property in Abu Dhabi are based on a leasehold investment and that is a leasehold right for 99 years. Equally so, in other emirates, for example in Sharjah, recently they’ve introduced a leasehold geographic zone where investors can buy but only, once again, on a leasehold basis. At this point, Dubai and Ras Al Khaimah as well have introduced the freehold, but the more typical scheme across other emirates is one of leasehold.
Some of the other specific rules and the regulations applying to real estate as per emirate relate to, for example, property transfer fees. In Dubai for a few years now, the property transfer fees are set at 4% of the value of the property. In other emirates, those property transfer fees have fluctuated but more or less some of the other emirates have introduced a similar property transfer fee of 4% but not all emirates have done that yet.
Some of the other specific rules related to emirates relate to, for example, the forms of payments that are allowed for transferring property, the form and content of powers of attorney on the basis of which a lot of property transactions have been and the various administrative fees paid to the relevant bodies.
Some of the other examples of emirate-based laws relate to the rental of properties. For example, in Dubai there is a specific rental law that has been on the books since 2007. In Abu Dhabi, such a law was just introduced recently in 2018. The other emirates do not yet have specialized rental laws, as is the case with Dubai and Abu Dhabi.
In Abu Dhabi and in Dubai, the rental laws outline specific rights and obligations of the parties entering into rental agreement, in other words, rights and obligations of tenants and rights and obligations of landlords, and in particular, some of the relevant terms and issues that are outlined in the laws relate to, for example, the term of the lease and the ability to renew or not renew the lease, and the landlord’s ability to increase rent or not, and also the terms and conditions and the process for claiming a deposit back. Also, in Dubai, for example, there are certain laws that are different from other emirates, or certain aspects of rental relationship. For example, (1) there is now an obligatory tenancy contract that is required by Dubai rental laws. (2) There is also a system and a requirement to register these rental contracts with a system that is called Ejari, and (3) there are also provisions in the law about increasing rent and rental caps.
Another example of the differences in real estate laws amongst emirates are those that relate to regulatory bodies and authorities involved in adjudicating and regulating real estate relationships and the real estate market. For example, in Dubai there is a land department called the Dubai Land Department, a government authority that has been formed years ago to regulate property contracts and investment in real estate properties for Dubai properties. The offshoot from the Dubai Land Department is also RERA which is a real estate regulatory authority that regulates relationships between brokers, for example, and the market.
In other emirates, there isn’t a similar entity to the Dubai Land Department, but instead those relationships are governed by municipalities. Also, in Dubai and recently in Abu Dhabi there is a new judicial authority that regulates in particular rental relationships and disputes related to rentals.
One of the other examples of the differences between the emirates is specific emirate-based laws related to, for example, regulating brokers. In Dubai there is a specific law that is under the jurisdiction of the Dubai Land Department and RERA, and that is one relating to the relationships and rights and obligations of real estate brokers and their involvement with the real estate market.
One other interesting example that for now exists only in Dubai and that is one that allows a right to residency on the basis of owning property. In other words, in Dubai if one owns property and if the property is worth over 1 million dirhams, for example, then that entitles them to applying for a U.A.E. residency visa which is a standard residency visa with all of the corresponding rights and obligations that come with residency and that is usually issued on the basis of employment. Other emirates, for now, do not have a similar arrangement.
Finally, one other interesting area of law that is again very emirate specific is one related to inheritance. The federal law mandates that any real estate assets are subject to sharia law upon death of the owner of the property. According to the sharia law, therefore, any wills or any documents that have specifically provided a different disposition of real estate assets or of one’s estate would be invalid because sharia would supersede. Now in Dubai, about two years ago, introduced a new system that allows for non Muslim expats to actually draft wills and have those wills registered and provides guarantees that those wills will be honored and enforced, which gives them the right to also include in these wills not just other commercial and noncommercial assets, but also specifically allows them to include real estate assets into their wills. This is a very significant law for the country because there are a lot of expats that own a lot of real estate in the U.A.E. and in Dubai in particular, and until this particular law was introduced, there wasn’t an assurance or a guarantee that those real estate assets would be disposed of as per their wishes upon their death because of this federal law that mandates that any such disposition must be subject to sharia treatment. Abu Dhabi has recently also introduced a similar law and similar provisions, allowing expats to do the same. We should likely expect other emirates to follow suit soon enough.
In summary, those are the differences between emirates and between emirate-specific laws and federal laws that relate to the real estate market.
