Following are the main provisions of the new law which all parties should be aware of:
Part one of the law defines several important terms including: the real estate register, the interim real estate register, the real estate development register, real estate development projects, escrow accounts, off-plan sales, service charges and community charges.
The law authorises Abu Dhabi’s Department of Municipal Affairs (“the DMA”) to:
- Organise and develop the real estate sector in Abu Dhabi
- Supervise and control all aspects related to the sector and coordinate with municipalities in this regard.
- Implementing the law, issuing licences, controlling escrow accounts and cancelling real estate projects.
Licensing and Registration
The types of entities or persons that are allowed to obtain a licence to engage in development-related activities are:
- Master developers and sub-developers.
- Brokers and their employees.
- Owners’ association managers, appraisers and surveyors.
The law creates two new registers: the real estate development register and the interim real estate register. Both registries will both be kept by DMA and developers will not be allowed to engage in real estate development unless they have been registered in the real estate development register. In addition, any disposal of off-plan units that hasn’t been registered in the interim register will not be legally binding.
Regulation of off-plan sales is one of the cornerstones of the law. This is where the buyer is granted real estate rights over a property that was built in accordance with floor or complex plans:
- A developer is not allowed to sell units off-plan unless it proves that it owns a real estate right over the project land and that it has opened an escrow account for the project.
- The law includes requirements for opening an escrow account and paying money from the escrow account.
- The law prohibits developers from collecting registration fees from investors, and only allows developers to charge administrative fees, which must first be approved by the DMA.
- Where there has been a gross breach of the contract by the developer, the investor may be able to terminate the off-plan sale contract.
- The DMA may take into account circumstances where the delay has not been caused by a breach of the developer’s obligations, for instance, if a competent authority has confiscated the land on which the project is to be constructed.
Result: This should result in lower costs for buyers. The law also protects investors by requiring developers to register units sold off-plan in the interim real estate register.
Real Estate Financing
The law allows units sold off-plan to be mortgaged only if:
- The loan amount is paid into the relevant escrow account.
- The loan is allocated for payment of the purchase price.
- The developer is prohibited from mortgaging the project land or any related real estate right unless it is for the purpose of financing construction of the project.
- The purchasers of the units must be notified of the mortgage by the developer.
Results: These new provisions on mortgages will help resolve the issues that banks face in connection with real estate financing.
The new law includes provisions for setting up owners’ associations, comprising all the owners of units in multi-unit real estate developments. Owners’ associations will be responsible for the management of those common parts.
- Any person who conducts the activities of real estate brokers, owners’ association managers, appraisers and surveyors without having an appropriate licence from the DMA may be punished by imprisonment or a fine of not less than 50,000AED and not exceeding 200,000AED.
- Any person who conducts real estate development activities in the Emirate of Abu Dhabi, fraudulently markets off-plan units for sale, or does not deposit the required funds into the escrow account may be punished by a fine between 100,000AED and 2,000,000AED.
- The DMA may cancel licences, if a licensee violates provisions of the law and the executive regulations or if the licensee is not performing its obligations properly in the opinion of the DMA.
- A developer may be removed from the development register if, among other things, it fails to commence construction within six months of the date on which it has received approval to sell off-plan units.
- The DMA can cancel a real estate project if the developer fails to start building the project within six months from the agreed commencement date or if it fails to complete the project within the agreed timeframe.