Doing the "legals" before buying in Dubai

Regardless of your home country there certain issues you should consider before diving into the property market in the United Arab Emirates. Already we have seen foreign nationals showing every confidence in the market and many spending serious sums of money on purchasing properties here. Profits can be lost though, by a lack of forethought concerning certain issues.

We all hope that the Dubai property market continues apace and the investor will succeed handsomely. That said, leaving aside the dynamic of supply and demand, you can still lose in any property market if you fail to consider all the other factors which can have a serious impact on your returns. Few realise that those profits can be eaten up quickly by hungry tax authorities in the investor's home country by failing to structure your portfolio correctly. Proper planning can alleviate that risk and an investor's initial purchasing considerations should take into account such implications.

The Dubai property buying community holds out great expectations for the forthcoming "new lands law". This long awaited piece of legislation should enable foreign nationals to register and be issued a title deed for their ownership of Dubai property, via the local Lands Department.

The potential investor should be aware that the law is still a bit unsettled with regard to foreign ownership of real property in the UAE. While the Federal law doesn't prohibit the ownership of UAE property by a foreign national, to date, registration procedures have not yet been formulated. Developers are currently working with the Dubai Lands Department on this matter.

Under current Federal law, nothing prohibits Dubai from passing legislation permitting the foreign ownership of Dubai property, and general consensus seems to be that the "lands law" will be formally promulgated. Thus, while it appears that the Dubai lands law would not conflict with the Federal law of the UAE (and most people agree that it is unlikely that future Federal law would overturn the Dubai "new lands law"), potential investors should be cognisant that in the worst case scenario, the UAE government would have the right to issue a Federal Law to bar foreign ownership of Dubai property. Such an outcome would seem unlikely given the UAE's progressive stance and its potential for attracting foreign investment.

Aside from the federal constitutional issue about Dubai's ability to pass a law authorising foreign ownership of property, there are many other legal matters that should be considered by the foreign person wishing to buy property here.

The purchaser may be at risk with regard to the initial monies deposited. The properties in question are often not yet built, yet purchasers are paying the developers a large percentage of the purchase price. As of yet, there is no requirement under Dubai law for protection of the purchaser in the event difficulties arising with a developer who is not backed by the UAE Government. The matter is likely to be left to the contractual agreement between the purchaser and the developer. Purchasers should consider that the contract is undoubtedly drafted in favour of the developer.

There is also some uncertainty regarding the Sharia law implications of property inheritance particularly for foreign nationals. When buying in Dubai, very few investors appreciate that the legal system here is different to that they may have at home. In the event of death, the property does not necessarily pass entirely to the wife since Sharia Law (the governing law of the UAE) determines otherwise as laid down in the Koran (An-Nisa Chapter 4 para 7 onwards). The Sharia Courts govern the dissemination of the estate; they may consider the fact that you may have a Will but it all comes down to the decision of the Judge in Court. In simple terms, the dissemination of the estate is wife 1/8, daughter 1/8, son 1/4, mother & father, spouse mother & father, uncles, aunties, brothers, sisters and so on. For many, a Will is frequently overlooked and it will have to be translated and attested for the local Courts. Moreover, the instance of most investors having a translated Will, up to date or any Will whatsoever in the first place, is in my experience quite rare.

There have been examples of this situation already in Dubai. In the first instance, the Court ruled that the property should be disseminated in accordance with Sharia principles. Fortuitously, the spouse was on amicable terms with all the extended members of her family and in turn they all gave back their share after the event. In another case, the Judge ruled in accordance with the Will but insisted that that the family members showed up in Court. Those members had to make arrangements to fly in from Australia and South Africa to attend proceedings. It goes without saying that no one wants to spend time and money engaging Courts in any country particularly at such a difficult period.

In order to ensure the property is passed on to those you wish in a timely manner, an offshore structure could be established with the spouses as Directors. In the event of death, the shares of the company are passed on to the surviving spouse and beneficiaries. Although the spouse has died, the offshore company has not and an internal transfer of shares will overcome this potential Sharia issue. Remember a Will or buying in joint names will not circumvent UAE law and it is quite simple to make your property purchase Sharia friendly.