The United Arab Emirates has a vibrant real estate market. It has been experiencing consistent growth, and attracting international investment, particularly in the emirate of Dubai. Many expatriates in the country are looking to invest in real estate projects, especially in off-plan properties, to obtain the best deals.
What are off-plan properties?
Off-plan properties are real estate properties that are purchased before or during the construction of a project. They are properties that are set to be developed within a few years. Due to the initial stages of the property development, off-plan properties are sold at a discounted price.
What are the risks associated with buying off plan projects?
Investing in off-plan properties is sometimes considered risky due to the fact that there are some chances that the development of the property may face undue delay or may even stay incomplete. There have been instances where the properties are delayed by multiple years, or face obstacles due to the developer’s inability to secure funds, due to which the project is unable to move forward.
How to mitigate risks involved in off plan property investment?
Although there are risks associated with investing in off plan projects, some of these risks may be mitigated by taking certain precautions.
- Conducting thorough due diligence
When investing in off plan properties, it is extremely important to conduct thorough due diligence about the land, the project and the developer associated with the project. The UAE government has issued strict licensing requirements and maintains thorough records of projects and developers in the UAE.
According to Article 6 of Law No. (7) of 2006 on Real Property Registration in the Emirate of Dubai, all real property rights must be registered with the Dubai Land Department (“DLD”). Similarly, all off plan properties must be registered with Oqood. Developers in Dubai are required to be registered with the DLD and must obtain a real estate developer license from the Real estate Regulatory Agency.
- Investing with legitimate and reliable developers
Apart from determining whether a property developer is registered with the competent authorities, one may also look into other factors regarding the developer. Off-plan projects with established and reliable developers are considered to be less risky than with new developers.
- Reviewing the Sale purchase agreement and other contracts with the developer
The obligations of the parties involved in the purchase of an off-plan property is laid out in the Sale Purchase Agreement (SPA). It is important to thoroughly review and understand this contract. The SPA contains information such as the property details, representations and warranties made by the seller, payment plan, the completion date, the development plan in stages and the time for the completion of each stage, and penalties in case of delay.
By thoroughly analysing the terms of the SPA, buyers can take timely actions if and when the developer breaches the terms of the contract. Article 246 of the UAE Civil transactions Law under Federal Decree Law No. (5) of 1985 states that a contract must be performed in accordance with its contents, and in a manner consistent with the requirements of good faith. The Article also states that the contract must not be restricted to an obligation upon the contracting party to do that which is (expressly) contained in it, but must also embrace that which is connected to it by virtue of the law, custom, and the nature of the transaction.
- Making payments to a registered ESCROW account
ESCROW accounts that are regulated by RERA may offer increased security in cases of off-plan properties.
- Monitoring the project
It is essential for an investor to monitor the development of the project. One may determine the development by verifying whether the project’s development is in line with the developmental plan outlined in the Sale Purchase Agreement. One may also monitor the development by reviewing the latest technical audit of the project, conducted by the Dubai Land Department.
What are the available legal remedies if an off-plan project undergoes undue delay?
Despite the best efforts taken by a property purchaser, an off-plan property may still face delay and other obstructions. In such cases, the purchaser has certain legal remedies at his disposal.
- Complaint with RERA
Complaints regarding developmental delays can be filed with the Real Estate Regulatory Authority, particularly through their Real Estate Violations System (RVS). RVS is an automated system designed to register all complaints and streamline the procedures related to property matters in Dubai.
- Civil Proceedings
Individuals can also initiate civil proceedings against the developers, before the UAE Civil Courts, and may either seek the specific performance of the contractual obligations or they may seek the cancellation of the contract and restitution of damages. Article 295 of the UAE Civil transactions Law states that damages will consist of a money payment, unless upon the request of the victim, and in accordance with the facts of the case, the judge may order that the damage be made good by restoring the parties to their original status, or by performing, in compensation, a specific matter connected with the prejudicial act.
What are the instances where a developer is deemed to have committed negligence?
According to Article 22 of Executive Council Resolution No. (6) of 2010 Approving the Implementing Bylaw of Law No. (13) of 2008 Regulating the Interim Real Property Register in the Emirate of Dubai, a Developer will be deemed to have committed negligence or omission in performing his obligations based on the following:
- delay in taking possession of the land or obtaining the required approvals from the Competent Entities to begin the implementation of the project, without any valid reason
- if a Sub-developer has sold off-plan properties without the written approval of the Master Developer;
- if there has been delays in obtaining the Master Developer’s written approval of the plans and designs;
- if there has been delays in preparing the project for construction works;
- failure to provide RERA with the data and information required for approval of the project;
- failure to register the project with RERA;
- failure to disclose the financial statements of the project to RERA; or
- any other grounds determined by RERA.
Nevertheless, in certain cases, the court may rule that the delay was outside of the control of the developers, such as in cases of force majeure, if the property of the land where the project was to be established was acquired for public use, if a government party freezes the project for re-planning, or if buildings, excavations or service lines are discovered within the project location, etc.
Conclusion
Although off-plan properties are available at attractive prices, it is essential to understand and analyze the risks associated with buying these types of properties. Buyers must ensure to conduct thorough due diligence, review contracts and take timely legal actions if and when necessary. The UAE has implemented a number of legal protections, and has established certain dispute resolution systems to address any issues that may arise in property transactions. By following these steps, buyers can reduce risks and make secure off plan investments.
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About the Author
Dr. Hassan Elhais publishes analysis of UAE property law matters, including property matters, tenancy obligations and rental disputes. For readers researching rental dispute lawyers in Dubai, his writing offers insight into the legal questions surrounding these topics. Explore his published work and practice-area information for further context.
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