Real estate from a developer in Dubai: we analyze the legal aspects

OWRealty clients often ask if it is worth buying a property under construction in Dubai? What happens if the developer does not hand over the object? What other risks are there in such transactions? Real estate agency OWRealty answers the most frequently asked questions and analyzes the legal nuances of transactions with real estate under construction.

Should I buy property from a developer in Dubai?

The beginning of 2023 showed strong growth in the housing market under construction. According to the consulting company CBRE, in January and February, sales in this segment increased by 78% compared to the same period in 2022. This confirms that the demand for real estate in Dubai from the developer remains high.

In Dubai, the practice of buying real estate at the construction stage (off-plan) is common. You can buy off-plan property in Dubai for personal use or for investment purposes.

Such housing has many advantages:

• Housing under construction is on average cheaper than finished housing by 20-30%. As the delivery of the object approaches, it only increases in value.
• Interest-free installment payment for 3-5 years from the developer. The initial booking fee is usually only 5-10%. Further payments are made according to a certain schedule. Each object has its own. The final payment occurs at the time of delivery of housing. Sometimes a final payment option is available within 1-2 years after construction is completed.
• Large selection of objects and layouts. Buyers of real estate from a developer in Dubai choose from a variety of offers on the market and with the help of a real estate agent can choose the most suitable option.
• Objects are most often rented with high quality finished finishes and a kitchen. There are options for fully furnished.
• Off-plan real estate can be sold even before construction is completed. To do this, you need to pay at least 50% of the cost of the object.

Cons of real estate under construction in Dubai:

• We have to wait until the end of construction.
• Failure risk. In Dubai, it is minimal. We'll explain why next.

Who regulates the purchase of real estate from a developer in Dubai and how?

There are 2 government departments in the emirate that regulate the Dubai real estate market. When concluding a transaction, the buyer will have to interact with them without fail.

• DLD (Dubai Land Department) - Dubai Land Department. This is the main state structure, which is responsible for the local real estate market. All transactions and transfers of ownership take place through the DLD.

• RERA (Real Estate Regulatory Agency) is the main regulator of the Dubai real estate market. The agency controls the developers and the interaction between the parties to the transaction. It is in its competence to check compliance with technological standards during the construction and maintenance of the facility, regulation of financial and legal relations of market participants. The Agency has the right to cancel projects in case of significant violations.

The legal registration of the transaction is regulated by the Real Estate Law No. 7 of 2006 on the regulation of land registration in the Emirate (Land Registration Law No. 7 of 2006 in Dubai). It states that foreign citizens can buy property in special freehold zones or rent it in leasehold (long-term lease for up to 99 years).

State guarantees when buying property from a developer in Dubai

The Dubai real estate market plays a key role in the economy of the emirate, so the authorities are taking all measures to maintain its stability. All facilities under construction are under strict state control. Each new project is registered with the Dubai Lands Department.

Current laws give buyers of real estate under construction a guarantee of saving their funds. The money goes to the escrow account of the object, and not directly to the developer. This is stated in Law No. 8 of 2007 on Escrow Accounts for Construction Projects in the Emirate of Dubai.

According to this law:

• A separate escrow account must be opened for each object. Funds from it cannot be used in the construction of other facilities, creditors cannot seize them.
• The state, represented by the DLD, regularly monitors the state of the account and receives reports on the receipt and expenditure of funds.
• After the completion of the construction of 5%, the entire amount remains in the account until one year has passed from the date of registration of the objects in the name of the buyers.
• If the developer cannot complete the project, the funds saved on the escrow account are used to complete the construction by another developer or return money to investors.

Requirements for developers in Dubai

In order to obtain a permit for the construction and sale of real estate under construction, the developer must meet the mandatory requirements. They are determined and controlled by RERA.

• The developer is obliged by right of ownership to own the land on which construction is carried out
• Sale of off-plan real estate is allowed only after the completion of the 20% construction of the facility
• The developer must deposit an amount of at least 50% of the project cost to an escrow account. This is necessary in order to confirm the financial solvency of the developer.

There are many developers in the Dubai real estate market: both those with a portfolio of millions of projects around the world, and companies that are just entering the market. In order not to make a mistake with the choice of a developer, you need to contact qualified specialists of real estate agencies. OWRealty works with over 60 developers in Dubai but only recommends 20 of them based on their reliability and other important factors.

The largest and most reliable developers in Dubai:

• Emaar
• DAMAC Properties
• Meraas
• Ellington Properties
• Omniyat
• Sobha Realty
• NAKHEEL

What will happen if the developer does not complete the object?

Based on how seriously the state controls developers, this situation is unlikely. But still it is not excluded.

As mentioned above, if the developer cannot complete the object himself, government agencies provide assistance in finding another developer or control the return of all funds from the escrow account.

There are times when a project is canceled by RERA. This situation can happen when:

• the developer does not start construction without a good reason
• the developer has no intention to continue the project in good faith
• the developer does not carry out the project due to gross negligence

If RERA cancels the project, the developer is obliged to return all payments to the buyers. If within 60 days the developer does not return the funds, RERA defends the rights of buyers and has the right to submit documents to the court.

In case of any disagreement: not only “freezing” of construction, but also delays in the transfer of housing, buyers can independently apply to the Dubai judicial authorities to protect their rights.

Dubai has a special court that resolves disputes over canceled and unfinished projects. It's called The Special Tribunal for Liquidation of Cancelled Real Property Projects. 

Conclusion

Let's summarize briefly:

• The purchase of real estate from a developer in Dubai during the construction phase is under the close supervision of government institutions.
• The safety of funds is ensured by an escrow account, separate for each object
• Each off-plan object must be registered with the Dubai Lands Department. Before buying, you need to make sure that the developer has a building permit.
• Contact a real estate agency. Specialists know all the legal details of the transaction and will help to draw up the necessary documents.

OWRealty agents are ready to pick up suitable property under construction of more than 500 in the database and provide full legal support for the transaction at all stages. Each client has a personal manager.