Over the past decade, the UAE’s real estate sector underwent controversial development and was severely shocked during the global financial crisis. From that experience, we learned valuable lessons, leading to the greater stability and maturity we see in today’s real estate investment market. Khairallah Law Firm notes that this new Abu Dhabi real estate law marks the next important step forward, offering a balanced approach that provides crucial protection for stakeholders and serves the wider public interest.

Part one of the Abu Dhabi real estate law defines several important terms, including the real estate register, interim real estate register, real estate development register, real estate development projects, escrow accounts, off-plan sales, service charges, and community charges.

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Responsible Authority in Abu Dhabi Real Estate Law

The Abu Dhabi Real Estate Law grants the Department of Municipal Affairs in Abu Dhabi (the “DMA”) jurisdiction over regulating and improving the real estate sector within its emirate. The DMA manages and monitors all aspects of the sector, working along with municipalities. In addition to enforcing the law and issuing licenses, the DMA also regulates trust accounts and cancels real estate projects. The DMA, which already manages all the affairs of municipalities and other property matters under the Abu Dhabi property law, will be further overburdened. Nevertheless, the law clearly states that a new unit will be created to assist the DMA in enforcing this act and performing its other functions.

Licensing and Registration Procedures

Master developers, sub-developers, brokers and their employees, owners’ association managers, appraisers, and surveyors can obtain a license to engage in development-related activities. The law stipulates that individuals must obtain a license from the DMA before engaging in any activities related to real estate investment in Abu Dhabi. Furthermore, unlicensed individuals cannot claim remuneration or fees.

The Abu Dhabi real estate law establishes two new registers: the real estate development register and the interim real estate register, both maintained by the DMA. Developers must register in the real estate development register before engaging in any real estate development. Additionally, this register will store all data and documents related to licensees, escrow accounts, banks, and project marketing.

The law also mandates that all disposals of off-plan units must be registered in the interim real estate register. Any disposal will not be legally binding on the parties to the sale agreement or a third party unless registered in the interim register.

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Real Estate Financing Solutions

Under the Abu Dhabi real estate law, units sold off-plan can be mortgaged against a loan to which the amount is paid into said escrow account and ringfenced for the purchase price. Further, the developer cannot mortgage the land of the project or a real estate right associated to it if: it will use those proceeds (a) to finance the completion of his residential buildings need financing and whose total funds from this building on an escrow account for compensation in case not sufficient only collected amounts for commissioning projects; The developer must inform purchasers of the units about it and release the mortgage once he has paid out in full from sale proceeds to pay for his debt.

The mortgage provisions allow enforcement when a debtor misses installment payments. When this happens, the bank may enforce an immediate payment of the mortgage loan acquired in summary court against the debtor. This is without needing a court judgment in favor of any claim or debt owed by such person as an obligation. If all the provisions are fulfilled, any party to a dispute must comply with them for their Abu Dhabi property investment to remain secure.

Owners Associations under Abu Dhabi Real Estate Law

The new Abu Dhabi real estate law includes provisions for setting up owners’ associations, which will consist of all unit owners in multi-unit real estate developments. These associations will be independent legal entities, holding title to the common areas of development and managing those common areas.

Establishing owners’ associations has been challenging in other jurisdictions, such as Dubai. To address this issue, the law grants the chairman of the DMA the discretion to issue a resolution that replaces the owners’ association with the developer of the real estate project or another specialized entity. This replacement will manage the common areas of projects until the practicalities of operating owners’ associations are well established.

Penalties and Enforcement

Violations of its provisions are punishable under the law. For example, anyone who performs the individual activities of real estate brokers, owners’ association managers appraisers, etc., without obtaining a license from DMA may be punished with imprisonment and/or fines of BTC 50K up to BCT200K. Moreover, penalties of an amount to be determined by the Seanadoor Committee (which may range between AED 100,000 and a maximum penalty of up to AED 2 million) apply wherever a person carries out real estate development in Abu Dhabi, Sells off-plan units generically or fraudulently, Misuses money paid by home buyers for any other purpose without compliance with escrow account requirements.

Conclusion 

Everyone must read and learn what the law requires of them, as it will herald changes not only in how investors are treated but also address issues that have paralyzed structured mandatory sales throughout Abu Dhabi.

Although the law is a considerable victory for Abu Dhabi – and more broadly, the UAE as well – there are significant apprehensions about how its enforcement will work. While there are benefits to having a single regulator overseeing the Abu Dhabi real estate market, how effective the changes will be hinges on whether or not the DMA is fully prepared and equipped to regulate and monitor this market.

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