Abu Dhabi's new real estate regulations to bring clarity to a range of issues

Following a drafting and consultation process, in June 2015 the Abu Dhabi government promulgated a new real estate law, which officially came into effect on January 1, 2016. The 90-article law contains a wide range of measures, chief among which is the creation of a real estate registry – though some industry figures say that more remains to be done to reform certain regulations, including the passage of a new set of laws on land registration.

A Positive Step

The law also prohibits developers from charging so-called registration fees and sets out the rights and obligations of the various categories of licensed professionals in the sector, including developers and brokers, including the imposition of penalties on anyone acting in such roles without having first obtained a licence. Falah Al Ahbabi, director-general of the Abu Dhabi Urban Planning Council (UPC), said the changes would have a major positive impact on the sector. “The law will help improve the market by better organising the activities of developers, brokers and clients and the relationships between them. The measures will also ensure that clients feel protected, thereby attracting more investors,” he said.

The law also includes measures to protect off-plan buyers. Developers are now required to register off-plan developments with the Abu Dhabi government and seek permission from it to launch sales, as well as to open escrow accounts, known as “project guarantee accounts”, when opening new developments for sale, into which purchasers’ funds are deposited. To avoid a repeat of problems experienced by off-plan buyers of properties in developments that were not completed following the international financial crisis, under the law buyers of off-plan properties can now cancel purchase contracts in the event of a gross breach by the developer, while the authorities can remove a developer from the development register if it does not begin construction work on an off-plan project in a timely fashion. The law also allows for mortgages on off-plan properties, provided that the mortgage is paid into such accounts.

While the changes are likely to be welcomed by buyers, Mai Hassan, financial analyst at real estate firm JLL, told OBG that they could make developers more cautious about future investment. “It won’t have a huge impact, but developers will know that they can no longer fund new projects with income from off-plan sales, which may see them rein back their plans somewhat,” she said.

New Rental Index

Following the abolition of a 5% annual rental cap in 2013 and rapid rent rises thereafter, the authorities are also studying a new rental index system, according to media reports in November 2015. The system will set out rental price bands with minimum and maximum rents by location and unit type, similar to an existing system in Dubai known as the Real Estate Regulatory Agency (RERA) Index. “The rental index will provide a guide for tenants and help them to negotiate with brokers,” Al Ahbabi told OBG. “Landlords are very resistant to the idea of rental caps, so there is a need for a more flexible system along the lines of the RERA model in Dubai,” said Ali Eid AlMheiri, executive director of Mubadala Real Estate and Infrastructure. The authorities are also working to facilitate real estate-related bureaucracy. For example, Abu Dhabi City Municipality in 2015 launched a new e-service allowing attestations of tenancy to be processed and issued electronically.

The government is also taking measures to improve the availability of information on large real estate developments. In October 2015 the UPC announced that 19 developers had agreed to provide it with more information on their projects. “The latest real estate laws have brought additional stability to the market and have provided more transparency which is positive in terms of heightening investor confidence,” Sufian Hasan Al Marzooqi, CEO of Tourism Development & Investment Corporation, told OBG.