Real Estate Laws in the UAE: What Homebuyers Need to Know

The procedure of buying property in the UAE is one of the simplest and the most convenient in the world. This applies to both new buildings and the secondary market. Transactions are strictly regulated by the state, so that the interests of sellers and buyers are fully protected by the law. However, there are several important things that homebuyers should know. In this article, we will introduce you to some real estate laws in the emirates, forms of ownership available to foreigners, and rules for buying a home.

• Real Estate Laws in Dubai
• Types of Property
• Leasehold
• Usufruct and Musataha
• Freehold
• The Process of Buying a Property

Real Estate Laws in Dubai

Real estate transactions in Dubai are strictly regulated. The authorities are tough about the observance of the law in this area and the low level of corruption and customer-oriented bureaucracy make investors feel safe. All participants should follow the law, so before buying make sure you learn about the most important legislation. Here are the basic Dubai real estate laws:

• Law No.7 of 2006 concerning real estate registration. The aim of this law is to regulate issues of property rights for legal entities and individuals, as well as to reduce administrative barriers for foreigners buying real estate. 
• Law No.85 of 2006 regarding the regulation of the real estate brokers register. It applies to all companies that deal with sales and purchase of the properties registered in the DLD.
• Law No.8 of 2007 “On the Matter of Escrow Accounts for Real Estate Development” was issued to ensure the legal protection of the off-plan property purchasers and introduced the registration procedure.
• Law No.9 of 2009 amending certain provisions of Law No. 13 of 2008 “Regulating the Interim Real Estate Register in the Emirate of Dubai.” The document establishes the list of development projects that may be owned by foreigners.
• Law No.14 of 2008 concerning mortgages in the Emirate of Dubai.
• Law No. 26 of 2007 concerning renting in Dubai.
• Inherited property law.

Types of Property

The UAE’s real estate market has not always targeted foreign buyers. Quite the opposite, it remained extremely closed until the early 2000s. The authorities started to reform some laws concerning property ownership and Dubai was a pioneer. In 2001, the government of the emirate granted foreigners the right to own real estate in certain areas on a lease basis. In 2002, Sheikh Mohammed Bin Rashid Al Maktoum signed a decree, according to which citizens of non-Arab countries received the right to buy real estate in certain areas, with 100% ownership. In 2006, the right of non-residents to acquire ownership of a property was enshrined in Real Estate Law No. 7, an important piece of legislation.

Thus, foreigners have two main options of property ownership in the UAE: leasehold (long-term lease) and freehold (absolute possession of the property).  Certain areas are allocated for each of these forms of ownership.

Leasehold

Leasehold is a non-exclusive property ownership, a sort of a long-term rent. You acquire the rights for the property for a limited period of time (no more than 99 years). At the end of the lease period the property returns to its owner. Compared to a common long-term lease, in this case the investor has more opportunities. They can rent out to the third parties under the sublease agreement, resell the lease rights before the end of the lease period (in this case you have to document that the person providing the leasehold does not have any claims), use real estate as collateral, replan or rebuild the premises. At the same time, the direct owner, who often acts as the developer, remains the full owner of the land and the property.

Only citizens of member countries of the Gulf Cooperation Council (GCC) can be ultimate owners of properties in leasehold areas. This is how the UAE government supports the local population. People pay less for utility services, can get more affordable mortgages and enjoy a number of other advantages.

Another positive thing about owning a leasehold property is its lower price and limited financial liability in case of forced repair. You can sign a contract for a very long period and, if necessary, extend it and keep using the property.

There is only one drawback about the leasehold apart from returning it to the owner. All changes and improvements, such as remodeling or renovation, need a written approval from the original holder of the property. The tenants might also face other restrictions, such as sublease possibility or of having pets.

Usufruct and Musataha

Usufruct and musataha are two types of leasehold. They are special permits for owning a property with restrictions. Usufruct allows foreigners to exploit the property owned by another person, without being able to change its original condition. Commonly, such real estate is seen as a lease for long-term investment. Expats and companies with foreign capital registered in the Emirates and the Gulf countries can conclude the usufruct agreement for up to 99 years. 

The musataha agreement is available for the same categories of citizens. The time limit for this type of agreement is up to 50 years. During this period, the holder of the right of musataha owns all buildings or facilities on the land plot. This type of ownership gives the right to build a new facility on the leased plot of land or complete and enlarge the existing one. Musataha is more common in Abu Dhabi. 

Freehold

Special freehold areas attract the most foreign interest. If you buy a property in these areas, you become the ultimate owner of the property and the land. The buyers are completely free to do whatever they want with their property without time limits: sell, rent out, donate, transfer by succession, reconstruct, and rebuild. The most important thing to remember when buying a home is that transactions can be concluded only with state-approved developers and real estate agents.

Both expats and citizens living abroad can buy finished housing or off-plan property in the designated areas. The UAE has been handing out Golden Visas for various periods of time to property buyers and their family members since 2019. New UAE visa regulations came into force in 2022. The minimum property value threshold for getting a renewable 10-year visa has been lowered from 10 to 2 million AED ($544,500) and you can now buy a home with a loan from a local state-approved bank. Investors can purchase not only finished housing, but also off-plan property from state-approved developers. 

In addition, foreigners can apply for a three-year resident visa when buying a finished property with a value at least 750,000 AED ($204,200).

Property rights imply the buyer’s responsibilities for the maintenance of the property. When the property is rented out, major repairs or maintenance is the responsibility of the owner. 

Dubai was the first emirate with freehold areas for foreign buyers. In 2006-2008, a list of free zones was also approved in Umm Al Quwain, Ras Al Khaimah, and Ajman. In 2019, a freehold area for foreigners appeared in Abu Dhabi. Gradually, freehold areas appeared almost all over the country, and their number keeps growing. For example, there are now around 70 freehold areas in Dubai, including Downtown Dubai, Dubai Marina, Mohammed Bin Rashid City, Bluewaters Island, Business Bay, Jumeirah Village Circle, Jumeirah Lake Towers, Umm Hurair, Al Barsha, Emirates Hills, Jebel Ali, Al Gouz, Ras Al Khor. Foreigners can own property in 9 areas in Abu Dhabi: Yas Island, Saadiyat, Reem, Mariya, Lulu, Al Raha Beach, Sayh Al Sedairah, Al Reef, and Masdar City.

The number of free zones is increasing because of the existence of new and undeveloped territories. However, there are also cases when a leasehold area transfers into freehold.  Freehold areas offer a wide variety of real estate, you can find apartment buildings, villas, and townhouses. It is usually easier to find a suitable option in these areas than in leasehold areas.

The Process of Buying a Property

The entire process of buying real estate in the UAE takes about one month and requires a rather small set of documents. You can even buy a home in the country remotely. In this case, to initiate the sales transaction you only need your original ID and a power of attorney for your representative. The power of attorney must be notarised in the country of signing and confirmed in the UAE embassy and the Ministry of Foreign Affairs. If you are in the UAE, you will need a valid visa and the confirmation of your residence address.

The buying process consists of the following five steps. For example, let us take a look at the procedure of buying properties in Dubai.

• Finding a suitable option
  Lots of agencies and developers offer real estate in the emirates. For your own safety, you need to check if the company has been certified by the Real Estate Regulatory Authority, or RERA. This agency regulates the activities of real estate development and brokerage companies, issues licences to developers and agents, and monitors compliance with the rules of selling and buying property in Dubai. 
• Signing of the preliminary agreement
  The agreement drafted in English or Arabic contains the address of the property, the payment amount, the responsibilities of the parties, and payment schedule. The appendix to the agreement specifies additional conditions. For example, when buying housing in a new building, the appendix indicates the date of completion and the amount of compensation in case of disruption of construction deadlines. 
• Signing of the Memorandum of Understanding (the sale and purchase agreement)
  According to this document, also known as Contract F, the buyer makes an advance payment to the seller of approximately 10% of the total transaction amount. If the transaction is completed successfully, the buyer gets the deposit back. If the transaction fails due to the fault of the investor, the deposit remains with the seller. In the opposite situation, the seller pays double compensation. When buying housing in an existing building, the agreement is valid for 30 days. 
• Obtaining a No Objection Certificate (NOC)
  The next step is to apply for a No Objection Certificate. The developer confirms the NOC after covering all the costs for the maintenance of the property before the transaction. After the NOC has been issued, the seller can transfer property rights. 
• Transfer of property
  After getting the NOC, the parties apply to Dubai Land Department, or DLD. DLD is a governmental agency responsible for registering, organising and promoting real estate investments in the emirate. DLD issues a payment cheque. After the money transfer, the buyer receives the title deed and becomes the owner of the property.
  

When buying an off-plan property, the buyer signs an original sales contract instead of NOC and MoU. This contract must be re-executed when the construction is completed. The transaction is recorded in a temporary register. 

Additional expenses may include the agent’s fee, the registration fee to Dubai Land Department, the administration fee for the title deed, the state fee for transaction registration, and the NOC fee. The last two expenses apply when buying secondary housing. 

Foreigners can count on a bank loan or an instalment plan from the developer. The average loan rate is 5.5% to 6% per annum. The purchased property or downpayment can act as collateral. If you use a mortgage, you need to pay an additional registration fee to DLD which is 0.25% of the loan amount.

Once you become a property owner, you have to register an agreement under your name at the office of Dubai Electricity and Water Authority (DEWA). You provide the title deed, a copy of your passport and make a deposit in the amount of $570.

In the future, owners of real estate in the UAE will not pay an annual property tax. They are required though to pay fees for maintenance of the building and the adjacent area.

In a Nutshell

In less than 20 years, the UAE authorities turned a completely closed local real estate market into one of the fastest-growing and most attractive in the world. The leader here is Dubai. Its government has simplified the procedure for entering the market for potential investors as much as possible. Clear regulations, transparency and safety of transactions in the UAE exist side by side with high real estate profitability, which will contribute to the future development of the market.