Navigating Real Estate Transactions in Dubai
Real Estate & Construction and Hotels & Leisure
Mohammed KawasmiPartner,Real Estate
Lea DagherTrainee Solicitor,Intellectual Property
Amidst the fast-growing skyline of Dubai, the real estate market in Dubai has sustained an upward trajectory. The rapidly growing market has attracted and captivated investors and buyers from all around the world. As the market continues to mature, it becomes increasingly crucial for investors and buyers to understand the legal framework and common practices for successfully conducting real estate transactions to mitigate risks and capitalize on investment opportunities. The process of purchasing property is an exciting journey, and this article will provide valuable insights and guidance to navigate through every step efficiently.
Since foreign ownership of real property has been permitted in Dubai, the real estate sector in the United Arab Emirates, specifically in Dubai, has proved to be a continuously growing industry. According to the Dubai Land Department’s (“DLD”) real estate transactions calculator, there has been over 51,000 property transactions totaling an estimated AED 148.63 billion since the start of 2024. As conveyancing, the process of transferring the legal title of a property from one owner to another, is becoming an essential part of the transactional work, it is vital to highlight the fundamental steps that buyers should take as a first step on embarking on their property purchase journey. Such fundamental steps include:
Legal due diligence: Legal due diligence involves the process of comprehensively investigating the legal aspect of the property to ensure the Buyer is aware of any potential risks and liabilities associated with the property and to verify that the property has a good title. Legal due diligence also involves the process of reviewing all agreements related to the property to determine any conditions that might pass on to the seller as well as any restrictions that might impact the property’s use and value. Title investigation is also an essential step of the due diligence process. Title investigation is the process of clarifying the legal status of the property and confirming the title of the seller by deducing whether the seller has the right to sell the property, as well as checking if the property is tenanted and if the property is subject to any restriction. As licensed real estate lawyers, Al Tamimi & Company has access to the DLD portal to conduct investigations on properties.
Technical due diligence: Technical due diligence is the physical inspection conducted on the property to investigate if it has any defects. The inspections are usually conducted by specialized inspection companies in the market.
By taking the aforementioned steps, the buyer will be able to identify any potential legal and technical issues in order to make an informed decision on whether to proceed with the property purchase. Furthermore, any dissatisfaction with the prepurchase searches can compel the buyer to renegotiate the commercial terms of the transaction and attend to identified risks by taking appropriate measures such as indemnities or warranties from the seller.
Furthermore, it is essential to understand what type of documentation is required, depending on whether the seller and buyer is an individual or a company. This approach helps to better secure the buyer’s interest. It is very important to be aware of DLD policy regarding the required documents and fees; otherwise, the investor may not succeed in achieving the expected results.
The law in the UAE also permits foreign ownership of freehold properties and other property rights such as long leases, Musataha and usufruct rights in designated areas. When purchasing a property in Dubai, the DLD charges a 4% registration fee of the property value. The 4% fee is also triggered when the ownership of the property is being transferred. When a company owns a property, it is important to note that the DLD charges fees for any direct or indirect share transfer that takes place in the corporate structure of the company owning that property, as it considered as a change in ownership. If the share transfer is between first degree relatives or if the ultimate beneficial owner does not change, then the DLD may apply the reduced gift rate of 0.125% of the property value in such share transfers instead of the 4% fee. Al Tamimi & Company is certified by the DLD to issue a Corporate Structure Certificate (CSC). A CSC is issued to:
certify the corporate structure of the company;
determine any share transfers that might trigger DLD fees;
determine the relationship between the UBOs of the transferor and transferee for DLD to determine and apply the reduced gift rate;
determine who the authorized signatories in the transaction are.
The CSC saves time and costs to clients since usually the DLD requires all submitted documents to be fully legalized and translated to Arabic while a CSC does not require Arabic translation and attestation. A CSC simplifies the shareholding change notification process or sale and purchase process by replacing the numerous attested documents and translated documents that are typically needed for property transfers in Dubai. Al Wakeel provides comprehensive assistance and personalized support to clients throughout the entire transaction process.
Al Tamimi & Company provides exceptional advice through the ‘Al Wakeel’ service, that makes the property transaction a safe and secure process. In addition to thoroughly conducting title investigation and legal due diligence, Al Wakeel’s services also include preparing a power of attorney for our lawyers to represent our clients throughout the process, act as escrow agent which guarantees the safe transfer of money through our escrow account and arranging for closing of the property transaction in our offices located in DIFC in cooperation with the Registration Trustee Office. The registration trustee is responsible for completing the transaction, which marks the final step of the property transaction journey, where a title deed is issued electronically.
In the booming real estate market in Dubai, conducting thorough due diligence before purchasing a property is becoming a critical imperative. As the market continues to become more sophisticated and the DLD constantly updates its regulations and procedures, ensuring prepurchase investigations are done correctly is a vital step in securing a buyer’s interest in the property and protecting investments.
For further information,please contact Mohammed Kawasmi and Lea Dagher.
Published in June - July 2024
