February 10, 2019

Dubai off plan rules and regulations you need to know

As an investor buying an off plan project might secure you a lower price, there are a number of risks to beware of from project delays to market changes and more. This article aims to educate you regarding the latest laws governing off-plan property transactions. 

What is in it for the developers?

Developers in Dubai need to put 20 percent of the total value in escrow to launch a new project, as per the regulation that was enforced in February 2018. Verifying ownership of the project and paying all costs related to the land remains as before. The DLD also reiterated the need to obtain approvals from the competent authorities.

What is in it for the buyers?

This means that the buyers can be assured that the developer will complete their project on time.

This law also means that insolvent developers will be unable to sell projects as a certain amount of cash injection is required.

What is in it for investors?

The government of Dubai recently issued Law No. 19 of 2017. This particular law deals with off-plan property sales in Dubai, and in particular deals with a new procedure following the breach of a sales agreement by an investor.

  • If a breach happens, the Dubai Land Department (DLD) can serve a 30-day notice on a defaulting investor to cure the default
  • DLD will encourage investors and developers to reach a settlement (before the notice is served). And this will be mentioned as a clause in the sale and purchase agreement (SPA)
  • In an event when an investor fails to honor the terms of the SPA, DLD may issue an official document. This form of the declaration will state that a developer has fulfilled its legal obligations under the SPA and also specify what percentage of the unit has been completed
  • The developer has rights to void the SPA and sell the property at any stage
  • In an event when the developer voids the SPA, they would be obliged to return any surplus funds to the investor within one year of canceling the SPA. Or if the developer resells the property at auction, the developer would have to repay such surplus funds to the investor within 60 days of reselling the property, whichever is earlier.

Developer’s options

Where the project is over 80 percent complete, the developer has the following options:

  •  Retain all the sums paid by the investor, request the investor to pay the remaining sums and continue with the development of the project
  •  Ask the DLD to auction the property to collect any outstanding balance
  •  Unilaterally retain up to 40 percent of the off-plan sale agreement price and return any excess amount to the investor within one year of the termination of the agreement or within 60 days of the auction sale, whichever is earlier
  • Where the project is between 60 and 80 percent complete, the developer may unilaterally terminate the agreement, retain not more than 40 per cent of the sale agreement’s value and return any excess amount to the investor within one year of the termination of the agreement or within 60 days of the auction sale, whichever is earlier.

While stricter rules for off-plan sales have been implemented, developers will have more authority to deal with investors who default. On the other hand, investors have more security in terms of the new timescales governing the return of their money.