More and more UAE residents are choosing to invest in property in the country, so it is essential for buyers to know the differences in laws for foreigners and Emiratis.
For expatriates, buying property in the UAE is a transparent and straightforward process, said Robert Villalobos, head of brokerage at Engel & Volkers Middle East, but it’s important to understand the key rules and costs involved before making any long-term decisions.
The National spoke to experts in Dubai and Abu Dhabi to understand how regulations can impact investments.
Can foreign buyers purchase property anywhere they like in the UAE?
In Dubai, property ownership is split into two structures: leasehold and freehold. Expatriates are only able to buy in designated freehold zones, which includes prominent neighbourhoods such as Palm Jumeirah, JBR, Downtown Dubai, Dubai Creek Harbour, Arabian Ranches, Dubai Hills Estate and Dubai Marina.
"There are more than 70 designated freehold areas across the emirate, allowing foreigners to buy property in many of Dubai’s most sought-after communities," said Mr Villalobos.
"The variety means expats can choose between waterfront apartments, golf course neighbourhoods, family-friendly suburbs, and urban lifestyle hubs, all with full ownership rights."
What are the differences between leasehold and freehold?
In simple terms, freehold means you have full ownership of both the property and the land it sits on, Mr Villalobos explains. "There’s no expiry date on that ownership, which gives you greater control; you can live in it, rent it out, sell it, or pass it on without restriction.
"Leasehold, on the other hand, gives you the right to occupy and use the property for a fixed term, typically anywhere from 30 to 99 years. You don’t own the land, it belongs to the freeholder, which is usually the government or a master developer."
When that fixed term ends, ownership reverts back to the freeholder, unless the lease is renewed.
How do the rules differ across the Emirates?
Ben Crompton, managing partner of Abu Dhabi-based property brokerage Crompton Partners, said each emirates' laws is unique but broadly similar in that they're mostly governed by contract law.
"Contract law is fundamental because the binding document for the transfer process of real estate is the memorandum of understanding between the buyer and seller," he explained.
"In Dubai, they have more specific contracts – the MOU is called a Form F."
What is the process in Abu Dhabi?
"The first thing to note is that there are two different sets of legal jurisdictions regarding property in Abu Dhabi," Mr Crompton explained. One applies to Reem Island and Maryah Island and is under the Abu Dhabi Global Market (ADGM) law, while the second applies to the rest of Abu Dhabi, which is under the Abu Dhabi Real Estate Centre (ADREC) law.
"These two locations have different laws, so you need to apply the correct one when depending on which area you are buying/selling property in."
Secondly, regarding sales and purchases of property in Abu Dhabi, "the law is relatively silent", he added. "A lot of the sales law is governed by process, and also contract law."
In Abu Dhabi, although the ADGM has a standard form of contract, ADREC is also bringing one out soon. "However a lot of the terms of the transfer are still dictated by whoever is doing the conveyancing, which, for the most part are still real estate brokers," said Mr Crompton.
Abu Dhabi also has three types of ownership. There is freehold, which again is full ownership. Then there is usufruct, which is a 99-year lease, and Musataha, which is a 49-year lease renewable for 49 years.
"Usufruct is a standard lease of a property and Musataha is a lease of land with a right to build and lease the property that you build on that land," added Mr Crompton.
Can foreigners buy anywhere in Abu Dhabi?
There are laws surrounding who can buy what types of property, in what location and what types of legal ownership people can obtain, said Mr Crompton.
Expats can own property in the investment zones, created specifically by government regulation, including places like Sadiyaat Island, Reem Island, Maryah Island, Yas Island, Jubail, Raha Beach, Al Reef and a few others.
"Other areas are reserved for UAE nationals only," he added.
What additional fees do foreign buyers need to be aware of?
Mr Villalobos said a common misconception among foreign buyers in the UAE is that the price they agree with the seller is the only cost they need to consider.
"While there’s no income or property tax in Dubai, buyers should budget for costs such as the Dubai Land Department transfer fee of 4 per cent of the purchase price, a broker’s commission of 2 per cent, plus VAT, and annual service charges for the upkeep of communal areas, facilities, and security."
Do you need to be a UAE resident to buy property or be here in person?
"The simple answer to both is no," said Mr Villalobos. "You can buy a property as a non-resident, and there are straightforward procedures in place to make a remote purchase possible."
In Dubai, this includes digitally completing the Unified Form F, which is the contract between buyer and seller, and using a power of attorney for the transfer of ownership.
Is buying a property in the UAE worth it?
Despite the additional costs for foreigners, buying property in the UAE can be a "compelling option, he said,
"Mortgage interest rates for expats are highly competitive, and in many cases, monthly repayments are lower than what you would pay in rent for a comparable home."
What advice would you give to anyone new to the UAE considering buying property right now?
Mr Villalobos said all potential buyers should research the location and the buying process. "Each project and community in the UAE offers a different lifestyle, set of amenities and long-term benefits. Once you’ve narrowed down your preferences, engage with a reputable and established brokerage that can guide you through everything from securing a mortgage and arranging initial viewings to negotiating offers, handling contracts and completing the transfer of ownership."
Mr Crompton said, from a legal point of view, since real estate agents still co-ordinate property transfer in Abu Dhabi – and lawyers are rarely involved – it's important to get a broker with plenty of experience and who has a strong MOU.
"Make sure you read the MOU because it will govern the process of transfer between the buyer and seller."
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- Discounts on sales price of off-plan units
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- Mortgages with better interest rates, faster approval times and reduced fees
- DLD registration fee can be paid through banks or credit cards at zero interest rates
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How will Gen Alpha invest?
Mark Chahwan, co-founder and chief executive of robo-advisory firm Sarwa, forecasts that Generation Alpha (born between 2010 and 2024) will start investing in their teenage years and therefore benefit from compound interest.
“Technology and education should be the main drivers to make this happen, whether it’s investing in a few clicks or their schools/parents stepping up their personal finance education skills,” he adds.
Mr Chahwan says younger generations have a higher capacity to take on risk, but for some their appetite can be more cautious because they are investing for the first time. “Schools still do not teach personal finance and stock market investing, so a lot of the learning journey can feel daunting and intimidating,” he says.
He advises millennials to not always start with an aggressive portfolio even if they can afford to take risks. “We always advise to work your way up to your risk capacity, that way you experience volatility and get used to it. Given the higher risk capacity for the younger generations, stocks are a favourite,” says Mr Chahwan.
Highlighting the role technology has played in encouraging millennials and Gen Z to invest, he says: “They were often excluded, but with lower account minimums ... a customer with $1,000 [Dh3,672] in their account has their money working for them just as hard as the portfolio of a high get-worth individual.”
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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A skilled worker would be someone at a professional level (levels 1 – 5) which includes managers, professionals, technicians and associate professionals, clerical support workers, and service and sales workers.
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