Saudi Arabia: Key Issues Investors Need To Know When Buying Real Estate Off Plan: Part 1 Of Know Your Rights For Real Estate Investors In Dubai Guide

Last Updated: 9 October 2017
Article by Mohammed Kawasmi and Aruna Mukherji

Al Tamimi & Company proudly published a real estate guide called 'Know Your Rights for Real Estate Investors in Dubai' in collaboration with the Dubai Land Department on 3 April 2017 ('Guide').

The Guide provides companies and individuals with the vital information they need when considering investing in real estate in Dubai and seeks to answer some of the important questions that investors have regarding their real estate investments and dealings with Dubai Land Department ('DLD'), Real Estate Regulatory Agency ('RERA'), developers and other relevant parties. The Guide has been published in English and Arabic.

Over the course of next few months, we will be producing a series of articles aimed at keeping our clients informed on Dubai real estate laws and current DLD and RERA policies by exploring a number of legal topics mentioned in our Guide.

This article is Part 1 of the series and will focus on 'Key Issues Investors Need to Know when Buying Real Estate Off Plan' as stated in page 19 of the Guide. 

1. Is the real estate project registered with RERA?

Every real estate project in Dubai must be registered with RERA and the fee for registration is currently set at AED 150,020, which must be paid at the time of submission of the project registration application. The investor can directly check the registration details of the project on the website of DLD (www.dubailand.gov.ae). 

Failure to register the real estate project with RERA, or conducting development activity without a licence, can lead to a fine of AED 100,000 or criminal sanctions resulting in a prison sentence pursuant to the Escrow Law (Law No. 8 of 2007 concerning Escrow Accounts of Real Estate Developments in Dubai, 'Escrow Law'). 

2. Is there an escrow account for the project? What is the escrow account number and the name of the escrow account agent?

Any developer who intends to sell units off plan in the development project is required to open a separate escrow account for the project with an escrow agent (bank or financial institution) accredited by the DLD, pursuant to the Escrow Law. The developer must deposit in the escrow account all amounts received by the third party purchasers of off-plan units and loan payments funded by financiers for the purpose of construction of the development project. The amounts deposited in the escrow account shall be allocated exclusively for the construction of the development project and settlement of project financing payments. Every developer is required to register in the RERA TAS system, where it must record all financial transactions. 

The details of the project escrow account number must be stated in the sale and purchase agreement between the developer and investor, and any funds received from the investor must be directly deposited in the designated escrow account for the project. Furthermore, the investor can directly check the details of the escrow account agent and account number either on the DLD website or by using the 'Mashrooi' application launched by the DLD. The application lists all registered developers in Dubai, together with a list of all its registered projects and important details such as construction status of the specific project, escrow account details, etc.

3. What is the percentage of completion of the project and the expected date of completion?

The DLD website offers a project status tracking service, which allows investors to track the current status of the completion of real estate developments in Dubai by entering details of either the land number, project number or project name. The Mashrooi smart application also contains the project status tracking service.

The expected date of completion must be stated in the sale and purchase agreement between the developer and investor, and the terms of the agreement should address issues relating to default committed by the developer to meet such estimate timeline. It is common for developers to reserve a further period in the agreement, such as up to an additional 12 months from the expected date of completion, to factor in any delay caused in project completion. 

4. Is the developer registered with RERA? Does the developer own the development land or is there a development agreement between the owner and the developer?

RERA permits companies that are registered with the Dubai Department of Economic Development ('DED') with the activity of 'real estate development' or a DED Professional Licence holder to be registered as a developer for new development projects. 

The title deed of the development land should be in the name of the developer. Alternatively, the developer and the owner of the development land can enter into a project development agreement. The registration fees of the project development agreement between the developer and the land owner is 4% of the current market value of the land and the execution of the project development agreement must be done at RERA. The terms of such agreement can be amended subject to prior approval of RERA. However, in the event that the developer and land owner is able to establish to RERA that the two entities have the same or related ultimate beneficiaries in their corporate structure, the registration fees may be waived by RERA at its discretion.

5. Does the developer have the required permits and approvals from Dubai Land Department and RERA to sell off-plan in the relevant project?

If the developer intends to sell off plan, RERA currently provides the developer with four options, namely: 

 

  1. completion of 20 per cent of the construction works of the project by the developer and thereafter applying to RERA for its no objection certificate to sell off plan; 
  2. cash deposit of 20 per cent of construction value of the project in the designated escrow account and thereafter applying to RERA for its no objection certificate to sell off plan; 
  3. submission of a bank guarantee to RERA equal to 20 per cent of the construction value and thereafter applying to RERA for its no objection certificate to sell off plan; or
  4. submission of application to RERA seeking its no objection certificate to sell off plan without meeting the requirements set out above in (a), (b), or (c) but on the condition that the developer will deposit all received monies from third party sales into the designated escrow account and provided that the developer will not withdraw any money from the escrow account until and unless a target of 20 per cent of the construction works of the project has been successfully completed.

While a detailed analysis of the issues involved in the acquisition of real estate 'off-plan' is beyond the scope of this series and the Guide, we are confident that investors will find these materials a useful guide to their initial investment considerations and directing them to key issues. 

We look forward to presenting Part 2 of this series in our next Law Update issue.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

    Disclaimer

    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

    Registration

    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

    Cookies

    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

    Links

    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

    Mail-A-Friend

    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

    Emails

    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

    Security

    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions