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18 January 2008
Dynamic and viable land and property markets contribute to economic growth. Property markets generate wealth and facilitate foreign direct investment. They are the basis of a strong financial services sector (including insurance and mortgage banking), as well as a construction and brokerage services industry. A dynamic market encourages labour mobility and thereby enterprise restructuring. All of the world’s successful modern advanced industrial economies have well-regulated property and land markets.
The government of Dubai recently issued a long-awaited property law legalizing foreign ownership of properties in pre-designated areas in the emirate. Vice-President and Prime Minister of the United Arab Emirates and Ruler of Dubai Sheikh Mohammad Bin Rashid Al Maktoum issued Law 7/2006 legalizing freehold ownership of land and property to UAE and Gulf Cooperation Council (GCC) citizens. The law also applies to non-GCC expatriates, but is limited to pre-designated areas approved by the ruler.
The property law, which reaffirmed in an unequivocal manner a landmark change of policies and reflected the drive of the Dubai government towards the liberalization of its land ownership policies, forms a fundamental cornerstone for the development of the real estate market in Dubai.
This update examines the dynamics involved in the enactment of this law and its salient provisions.
Law 7/2006 stipulates that freehold is limited to UAE and GCC citizens and companies wholly owned by them, as well as public shareholding companies. The law also stipulates that, upon approval of Dubai's ruler, non-UAE nationals may be given the right to own properties in areas designated by the ruler. Non-UAE nationals will be given the right to acquire either a freehold property or a 99-year lease property in such designated areas.
The law includes 11 chapters comprising 29 articles covering:
It also stipulates the establishment of a Property Registry within the Dubai Lands and Properties Department.
The records of the Property Registry hold the ultimate evidence of all transactions, without exception. Its records cannot be challenged except in the case of forgery. Documents that are electronically saved by the Property Registry have the same evidential value as the original documents.
All property transactions and deals that create, transfer, affect or extinguish property rights (rights in rem) must be registered with the Property Registry. In addition, all final rulings that prove such dealings are not considered valid until they are registered. Any undertaking to transfer such rights as remain unregistered shall only give the beneficiary of such an undertaking a claim for compensation in the case of failure or breach, whether or not such compensation has been stipulated.
Article 23 of the law further stipulates that a multi-storey and multi-unit property is considered a single property unit that shall be given one entry in the Property Registry. All apartments of a single property unit will have supplementary records to include the names of the owners of the apartments, the storeys and any common facilities.
The law reaffirms public trust in the government of Dubai and sets out the regulatory framework for freehold real estate ownership in Dubai. The law will help to boost investor confidence, particularly among expatriate buyers, and is further expected to give an additional boost to the secondary market in real estate. This is a positive development since it will be another sign of growing confidence and maturity in the market, and a key element in the emirate’s emergence as a mature and prosperous economy.
It is generally accepted that an efficient, formal land registration system is an essential prerequisite for the operation of a formal land market. Informal land markets exist in many countries, but the operation of these markets is strongly inhibited by uncertainties in tenure. There is evidence of the economic benefit of improved tenure security. Property holders benefit economically through the increased tenure security provided for by property titling. This benefit is often reflected in increased property prices. Such a benefit of titling is currently being witnessed in Dubai, as by international standards, property is still fairly priced. The constant flow of expatriates also nourishes a lively rental market and sustains the uptrend which is unlikely to be interrupted for the next two to three years.
In its own rights, the law sets a unified model for the Emirate of Dubai whereby property rights and transfer of title are clearly defined. Prior to the enactment of the law, each property investment opportunity with a developer was considered unique and assessed on its own merits.
Although most of the early investors in the market showed little concern, some institutional and professional investors are more sophisticated and demand satisfactory due diligence and feasibility studies before deciding to invest. The Dubai property law will tilt investor confidence, resulting in new waves of fresh investment.
As regards financing availability, the law will further contribute to boosting the mortgage market in Dubai. Bankers are cautious professionals who seek to minimize their risks. UAE banks appear to have recognized the huge market opportunity in financing Dubai property and will naturally feel more comfortable after the enactment of the Dubai property law. This should contribute to the development of a competitive mortgage market.
The banking community has welcomed the new legislation and emphasized that registration of title will play a crucial role in the establishment of a healthy mortgage market.
Competition in the mortgage market will also result in lower interest rates to new borrowers. There is scope for tighter pricing yet, particularly if some new entrants decide to take a loss on initial lending to gain market share against the incumbents.
The Dubai property law has and will continue to have a positive impact on the development of the real estate market in Dubai.
For further information on this topic please contact Tony Maalouli at ProConsult Advocates & Legal Consultants by telephone (+971 50 625 8284) or by fax (+971 4 329 8733) or by email (firstname.lastname@example.org).
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