Abu Dhabi: Legislative Amendments to freehold Ownership Law
Abu Dhabi, being the capital of the UAE, is a sea of opportunity for growth of the business, investment, technical and urban development. However, it has yet to reach its full potential.
A research conducted by the Abu Dhabi Urban Planning Council through their Real Estate Forecast in 2010 showed that the real estate market is experiencing irregularities with regards to demand and supply. Therefore, as part of Abu Dhabi’s 2030 Vision, the Abu Dhabi Urban Planning Council proposed measures to curb this irregularity in the market to meet shortage and meet the increasing demand by implementing a comprehensive framework of plans that would improve economic growth. Legislations have been passed ever since, in order to meet these economic objectives. However, it became necessary to amend these laws to meet the social and economic development criteria even further.
The enacted legislation has opened up the market for foreigners and non-nationals in order to facilitate international and cultural expansion into the Emirate. The Real Estate Law Number 3 of 2005 laid down a comprehensive guide for all those who wished to invest. It answered a vast array of questions related to development, regulation, registration, enforcement, licensing, protection of buyers and sellers and many other such relevant topics.
Prior to the latest amendment, ownership of real estate was mainly restricted to UAE and GCC nationals. This amendment is of great significance since it now allows non-nationals to purchase and conduct the sale of land and not only the property that stood on the land. The Law Number 13 of 2019 undertakes amendment of Law Number 15 of 2005 regulating the ownership of real estate property.
Let us first understand what freehold exactly means.
What is a freehold property?
Freehold, literally means, “free from hold”. Ownership of such kind of property ensures exclusive rights of the owner legally free from any other entity. Purchase of property under freehold status entails the following;
- Exemption from annual rent on land, on which the property lies
- No restrictions as to transfer of property
- Non- answerability to a third party, i.e. complete charge over maintenance of the property
- Unlimited tenure of ownership
Freehold properties are usually undeveloped land which allows owners to build a property of their choice therein. These properties can be used for a number of purposes; hotels, commercial offices, residential buildings or houses etc. Some real-life examples of such freehold properties are, Palm Jumeirah, JBR, Dubai Hills Estates, Dubai Marina and La Mer by Meraas.
At the outset, an investor might think that freehold property is expensive and that leasehold is a better option. But if you think about it logically, would you rather buy land or property at a full and final price which also gives you the benefit of clear ownership title, or would you choose a property that whose ownership lies with someone else and have to constantly pay the price for it as per the changing market prices? This amendment, therefore, gives you the option of choosing the former and making a smarter investment decision.
Pre- Amendment Provisions
The real estate market in Abu Dhabi began to undergo development with the introduction of the Real Estate Law Number 3 of 2005 that laid down the fundamentals of real estate in the Emirate. This law established a regulatory authority responsible for the registration of real estate, called the Land Registration Department at Abu Dhabi along with establishing Al Ain Municipal Authorities. This law further laid down the rights and liabilities of buyers and sellers, the importance of registration of property and the consequences of non-registration. It further permitted all UAE nationals to own, purchase and sell residential, commercial and agricultural land.
The abovementioned law was subsequently amended to include provisions relating to rights of UAE, GCC and Non-GCC nationals with regards to ownership, leasing mortgaging etc. (Law Number 19 of 2005). Further, it also introduced the creation of investment zones which excluded foreigners from ownership of land. These investment zones are enumerated hereinbelow; Al Raha beach Area, Al Reef, Al Reem Island, Yas Island, Saadiyat Island, Lulu Island, Al Maryah Island, Masdar City and Seih al Sedeirah.
However, with the introduction of the supplementary Executive Council Regulation Number 64, directions were set out to benefit non-nationals through ownership of property in the investment areas. This benefit could only be availed through a long-term contract of 99 years or a leasing contract of 50 years on a renewable basis.
The authority responsible for regulating all real estate activities in Abu Dhabi are as follows:
- The Real Estate Law Number 3 of 2005 led to the establishment of the Abu Dhabi Real Estate Regulation Authority (RERA).
- The Department of Urban Planning and Municipalities is also responsible for maintaining real estate records.
- The Department of Municipal Affairs (DMA).
The legislation that governs real estate in Abu Dhabi are as follows:
- Law Number 3 of 2005 which deals with regulation of real estate registration.
- Law Number 19 of 2005 concerning real estate property and its amendments.
- Establishment of the DMA by Law Number 9 of 2007.
- Law Number 13 of 2019 latest amendment of the real estate property law.
Post- Amendment Provisions
A series of meetings between the Abu Dhabi Executive Committee, investors and developers have resulted in this monumental legislative amendment. Law Number 13 of 2019 has been enacted to enhance the international status of the Emirate. It aims to attract foreign investment leading to economic stability and geographic harmony.
Amendments have been made to Article 3 and 4 of the 2005 law. The amendment lays down provisions as enumerated hereunder:
- Article 3
- Emirati citizens are entitled to ownership of property.
- Non- nationals can own up to 49 PERCENT of public holding companies.
- Ownership of property is permitted with respect to any person who can acquire permission from the Abu Dhabi Executive Council.
- Further, non-nationals are also entitled to ownership rights over real estate (land) within the investment zones.
- Article 4
- Right of disposal of property without permission of the landlord, granted to holders of usufruct and mustaha property, holding property for more than ten years.
- The right of the landlord to mortgage property, without the consent of the holder of usufruct or mustaha property, has been revoked.
The biggest benefit of this amendment is with respect to ownership of land by foreigners. Previously, non-nationals were entitled to merely hold surface property by a deed of 99 years, i.e. apartments, floors, villas etc. this deed entitled them to re-sell the property but did not give them the option of sale.
With respect to mustaha, holders of the property could own residential units for a period of 50 years through a renewable contract with rights to make alterations and constructions excluding rights to own the land.
Further, the fact that usufruct properties could be owned for a period of 99 years barring the owner rights to make alterations served as a major impediment.
The amendment comes as a major relief to owners of the property and further encourages foreign investment in these investment zones that have been so allocated. It serves advantageous in the long run; however, this may lead to diminishing demand for a leasehold property.
The decision has been widely accepted by real estate developers for the following reasons:
Clear Title of Ownership
A clear title of ownership entails freedom from any impairment or lien by a third party. It helps alleviate financial risks and burdens and facilitates quicker transactions. It even allows the government to monitor activities of the titleholder with minimal effort. Developers can, therefore, expeditiously undertake construction activities.
The pandemic has caused instability in the economy, and many nations are struggling to recover, therefore, in a way, this step taken by the government will serve as a fruitful foresight in the current scenario. It can also be seen to have a twofold advantage for the economy by creating jobs along with encouraging investment.
Larger Investment Pool
A large investment pool indicates the availability of a large number of funds. Prior to the amendment, the investment was limited to funds from UAE and GCC nationals, which meant that there was a limitation imposed scope of reach of investment, however, now this scope has widened allowing for greater foreign investment in the specified investment zones.
High Return on Investment
The main aim of making an investment is to get returns on it. If investment prospects do not show high returns on investment, no investor would even approach that market. Considering the growth in the real estate and healthy economic conditions, Abu Dhabi has great potential to attract homeowners and investors owing to its favorable prices and appealing location. Therefore, investment in property is bound to give a high return on investment.
The new freehold law aims to increase investment by attracting a wider audience. Investment from wealthy expats will contribute to economic growth, especially in the current recessionary market where most countries are suffering a major dive in their market and are struggling to come back up.
Ease of Due Diligence
Prior to the enactment of the new freehold law, expats were allowed to hold property through 99-year leases, which increased the burden on banks when they had to conduct due diligence of those properties. However, with just one owner of the property and land as per the new law, the burden on banks is reduced; therefore, making real estate more bankable.
Buying freehold property has a wide scope of benefits for the investor. The land is practically yours until you want to sell it, this is exactly the aim of the new amendment; to facilitate an intelligent investment decision for foreign investors. Moreover, the value of the land only gets better with time, unlike in the case of leasehold was the value just depreciates.
The new law, therefore, opens up a whole new door of opportunities for expats and foreigners alike. It creates an atmosphere of equilibrium between nationals and non-nationals, which is a breath of fresh air the real estate market.