Abu Dhabi Property Law

The wait is over. 
Abu Dhabi recently passed long-awaited legislation to better regulate its real estate market. The law has been in effect since January 2016.

Abu Dhabi Property Law

The new Abu Dhabi property law (Law No. 3 of 2015) is a positive step towards standardizing practices in the capital’s real estate environment, which would in turn increase investment in the emirate and across the UAE. The Abu Dhabi real estate law looks to tackle the myriad concerns raised by investors and developers while drawing on the investment experience and landscape of Dubai. Hence, this regulation is being looked upon as an important step forward and a source of legal protection for stakeholders.

Retaining many of the fundamentals of the previous ruling, it has extended its reach to include many aspects that were previously either unclear or unaddressed.

1. Off-plan property

The new law gives rights to investors over Abu Dhabi property that is intended to be built by a developer. Now, an investor can terminate the off-plan sale contract if he/she experiences a gross breach of contractual obligations by the developer – for example if the developer delays construction of the project, delays meeting project milestones or does not complete the construction.

Moreover, developers cannot sell off-plan units unless they prove their rights over the proposed project land, open an escrow account for the Abu Dhabi real estate project, follow specific requirements for payments from and into the account, and adhere to conditions for advertising and marketing of their off-plan developments. The law also prohibits developers from collecting registration fees from investors and only allows them to charge admin fees, which must first be approved by the Abu Dhabi Department of Municipal Affairs (DMA).

2. Licensing

In order to engage in any kind of Abu Dhabi real estate activity, one needs to obtain a license from the DMA. Those entitled to licenses include master developers, sub-developers, brokers and their employees, owners’ association managers, appraisers, and surveyors. Moreover, all home financing or mortgage providers, be it banks, finance companies or financial institutions, have to be registered and licensed by the UAE Central Bank in order to be legally eligible to engage in real estate financing in the capital. Those conducting real estate transactions without appropriate licenses are likely to be punished by imprisonment and/or fines ranging between AED 50,000 and AED 200,000.

3. Financing for developers

The new law stipulates that developers can only mortgage a piece of land for a proposed project if the mortgage is specifically for the purpose of financing the project. Moreover, the mortgage is subject to three clauses; one, the loan amount should be paid directly into an escrow account. Two, the developer must officially notify all purchasers about the mortgage. Three, the developer and mortgage provider must release the mortgage oversold units once they are fully paid for.

4. Financing for buyers

The new regulation states that buyers do not have to pay developers any fees for registering their mortgage. They have to only pay administrative expenses for the registration process.

5. Mortgage registration

All mortgages have to be registered with the Real Estate Register or Initial Real Estate Register as per described procedures. Those that are not registered will be considered void. If multiple mortgage applications are received at the same time, the priority of mortgages will be listed in order of time and date registered. Moreover, each will be assigned the same serial number.

6. Mortgage transfer

The new Abu Dhabi property law allows transfer or assignment of a mortgage, subject to the consent of the mortgage provider. The transfer should then be recorded in the original title deed and registered.

7. Owners’ associations

In multi-unit real estate developments, owners’ associations must comprise owners of all units. On formation, the owners’ association will be considered as an independent legal entity that is responsible for all common parts of the development. The DMA chairman holds the right to replace an owners’ association with either the project developer or a specialized entity until everything is sorted.