The days of home buyers trading real estate in car parks of property exhibitions, such as Abu Dhabi’s Cityscape, are over thanks to a new law.
The days of home buyers trading real estate in car parks of property exhibitions are over thanks to a new law requiring owners to register their purchases before reselling them.
Law number 13 of 2008, announced this week by the Dubai Land Department (DLD), obliges purchases of even uncompleted flats and villas bought “off plan” to be registered with the department first before they can be passed on to a new buyer.
Until now, the trade of off-plan property has been unregulated, allowing speculators to “flip” the ownership of an uncompleted home for a profit just hours after making the purchase. The practice has led to chaotic scenes at property launches and exhibitions and fuelled rapid inflation in property prices. Buyers of completed properties, on the other hand, had to register with the DLD and pay transfer fees, receiving official proof of ownership in return.
The new law, plans for which were revealed by The National in May, has made it compulsory to register all off-plan and completed freehold property before it can be resold.
Analysts say it represents another attempt to stamp out the speculative buying that threatens to overheat the UAE’s property market. Several developers in Dubai and Abu Dhabi have said they will not allow buyers to resell their home until a minimum of 20 to 30 per cent of the property’s value is paid off, while Standard Chartered bank last month called for a capital-gains tax on property sold within a year of purchase.
“It will bring a level of control to the market from the point of view of people making a quick profit and getting out, and therefore overheating the market,” said Peter Penhall, the chief executive of the property portal Gowealthy.com.
“It’s trying to eliminate the speculator who purchases stock without having the adequate financial resources to complete the payments, should he be unable to sell.”
Most speculators pay a down payment on a property, often 10 per cent of its full value, and seek to resell for a profit before the next instalment is due several month later. Many do not actually have the funds in place to finance the full cost of the unit, setting up a high-stakes gamble that could have serious consequences if prices were to dip, Mr Penhall said. “There’s an element of overplay and that’s the area that [the law] is trying to address,” he said.
Under the new regulations, property developers store details of all off-plan sales from their projects on a computerised database, including the identity of the owner and seller, the value of the property, its location, the mortgage arrangement, the payment history and applicable fees.
Sales that have not been registered at the Land Department will be considered void.
Officials at the Real Estate Regulatory Agency (Rera), Dubai’s property market regulator, said the system would effectively become the first point of registering property and land sales in the emirate, and would speed up the process of issuing registered title deeds when the fully constructed building is handed over.
The law also states that property developers will be penalised for charging people to register their newly purchased homes with the Dubai Land Department, a payment known as a transfer fee, Rera officials said.
Under existing regulations, the DLD is permitted to charge both the seller and buyer one per cent of the value of the home to issue and register a property title deed. This registration process applies each time the property changes hands.
Some property developers have been accused of applying their own additional registration fees, a practice now prohibited by law. With two sets of charges, the amount that buyers paid to register their property reached hundreds of thousands of dirhams. Marwan bin Ghalita, the chief executive of Rera, said developers will only be permitted to charge a fixed administration fee in return for completing the registration process on an owner’s behalf.
The introduction of the law follows attempts by property developers to restrict speculative buying. Nakheel requires buyers at the Trump International Hotel and Tower to hold onto purchases for a full year before they can resell, while Emaar requires them to pay 30 per cent of the total purchase price. In Abu Dhabi, Aldar Properties is planning restrictions for resales on its next phase of properties, coming onto the market later this year, according to Ronald Barrott, the company’s chief executive.
By Robert Ditcham, The National (Abu Dhabi), August 25, 2008