Buying off-plan property in Dubai

With its immense determination, Dubai has established itself as a firm global leader in terms of innovation. As a hyper-connected business hub connecting the West and East, it offers great career opportunities to many talented graduates from across the world. Thus, the city has the highest rental yield of many other countries. As a result, most people are now investing in Dubai’s real estate, making it the world’s prime property hotspot. Therefore, with increasing demand, property prices have become a major hindrance for investors. And as a consequence, investors are now looking for buying off-plan property in Dubai because it is more affordable and provides a strong ROI (Return on Investment).

What is an off-plan property in Dubai

An off-plan property is an unconstructed property purchased directly from a developer. It’s a property that is yet to be built or in some cases is in the early stages of being built.

In order to purchase this type of property buyers rely on brochures and other marketing material to learn about the project and the exact property they are buying. Purchase is usually made with a 10-20% down payment and the signing of the SPA (Sales Purchase Agreement). Depending on which developer the rest of the payments made can and do vary but are usually linked to construction.

Costs of buying an off-plan property

Much like buying a ready property, there are certain fees associated with buying an off-plan property. The following table will outline all the main fixed costs associated.

•     Property Registration Fee = 4%       Payable To    Dubai Land Department
•     Oqood Registration = AED 3,000    Payable To    Dubai Land Department

Please note that whilst all the fees and charges do need to be paid, this does not always mean that its the buyer who is the one that ends up paying. As a way of incentivizing buyers, a large number of developers today are paying half or in some cases the entire Dubai Land Department Registration fee on behalf of buyers. If paid in full this equals a 4% saving which when combined with the 2% saving on agency fees equals a handy 6% saving.

The Legal Process of Buying an Off-Plan Property in Dubai

Like every other business, real estate transactions have their own set of rules and regulations that must be followed to ensure a seamless and legal purchase. When it comes to off-plan properties, there are certain additional steps that need to be taken in order to safeguard your investment. Therefore, the whole process requires a lot of deliberation and investigation.

Investing in off-plan property is followed by just one obvious selling statement: you are buying a property that does not exist yet. You need to have a certain level of trust for the developer as you will be investing your money in their project with an expected return on investment (ROI) only after the completion of the construction.

In off-plan transactions, there is no third-party guarantee like in the case of ready properties, so an escrow account is set up by the developer to ensure the buyers that their money is protected and will only be released when the project is completed as per the agreed schedule.

In order to make a sound decision, you must do your homework and study various aspects of the off-plan market in Dubai before you choose to invest. This includes:

• Analyzing the long-term market trends
• Assessing the risks involved
• Doing a background check on the developer
• Calculating the estimated ROI
• Selecting the right location

Laws & investors’ rights in buying Dubai off-plan properties

Question: I am planning to invest in an off-plan property in Dubai. What happens if the developer fails to deliver the property? What are my rights in this regard?

Response: In Dubai, any off-plan property sold by a developer needs to be registered in the Interim Real Property Register maintained by the Dubai Land Department (DLD). This is in accordance with Article 3(1) of the Dubai Interim Real Property Register Regulations.

Further, Article 4 (1) of the Dubai Interim Real Property Register Regulations states: “A master developer or sub-developer may not commence the implementation of a project or sell its units off-plan unless it takes possession of the land on which the project is to be constructed and obtains the necessary approvals from the competent entities in the emirate.

“In all events, the DLD must create an entry on the registry folio of the real property to denote it is being developed.”

Based on the aforementioned provision of law, once you find a suitable property, you may verify if the developer of the property has registered the project with the DLD. A developer may not enter into any sale contract with a purchaser until it obtains relevant approvals from the DLD. This is as mentioned in Article 10 of the Dubai Interim Real Property Register Regulations.

In case the developer fails to deliver the property you purchased in accordance with the terms of the Sale Purchase Agreement (SPA), you may request it to fulfil its obligations. If the developer does not comply, you may approach the DLD and file a complaint.

The DLD may attempt to settle the matter amicably between you and the developer. This is in accordance with Article 14 of the Executive Council Resolution No. 6 of 2010, which states: “Where any dispute arises between a developer and a purchaser, the DLD may undertake conciliatory efforts to preserve their contractual relationship and may propose any solutions it deems appropriate to achieve this objective. Where the developer and the purchaser reach an amicable settlement, that settlement shall be documented in a written agreement executed by the developer and the purchaser or their respective representatives. Upon approval of that agreement by the DLD, it shall become binding to both parties.”

The Real Estate Regulatory Agency of Dubai (Rera) may also cancel the project on technical grounds, if a developer does not fulfil conditions — such as failing to commence construction work without a valid reason; if the authority is satisfied that the developer has no genuine intention (good faith) to continue with the project; failure by the developer to implement the project due to gross negligence, etc. This is in accordance with Article 23 of the Executive Council Resolution No. 6 of 2010.

Further, a developer needs to refund all the payments made by a purchaser if the project is cancelled by the decision of Rera. This is in accordance with Article 11(b) of Dubai Amended Interim Real Property Registration Regulations of 2017.

In the event the developer does not refund the payments, then the Rera may take all necessary actions to preserve your right as a purchaser. This is in accordance with Article 27 of the Executive Council Resolution No. 6 of 2010, which states: “If the developer fails to refund the amounts owed to the purchasers within the period set forth in Article 26 (60 days) of this resolution, Rera must take all necessary actions to preserve the rights of purchasers including referring the matter to the competent judicial authorities.”

You as a purchaser may also approach the competent court in Dubai to seek termination of the SPA. This is in accordance with Article 20 of the Executive Council Resolution No. 6 of 2010. However, a developer may have protection under Article 21 of the Executive Council Resolution No. 6 of 2010 if the reasons for handing over of the property is delayed due to reasons beyond the control (force majeure) such as property taken over by authorities in the interest of the public; if authorities suspend the project for replanning purposes, etc.

Take note: A developer will have to refund all the payments made by a purchaser if the project is cancelled by a Rera decision