GCC property markets: what are you buying into?
THERE have been numerous discussions on whether to invest into GCC property, but less on what you’re actually buying. Property laws in the region are often largely non-existent, and it may sometimes be difficult to determine whether you have freehold or leasehold ownership – or whether you even own the land.
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These days, Dubai’s property laws are clearly defined, having slowly developed since the expat freehold market began in 2005. Yet, as those who bought early into the market will recall, it was only more recently that villa owners were required to register with the Dubai Land Department at 1.5% of the contract price of their property in order to own the plot – around AED 30,000 ($8,168) on a AED 2 million ($544,559) property.
Over time, laws have become more established and investors can be fairly sure that Dubai property, and the land it sits on, is really theirs to buy and sell as they wish.
In Abu Dhabi things remain less clear. As one UAE-based property lawyer explains, there is more of a mix between freehold and leasehold property, depending on where you are. Also, while expat property owners may own the bricks and mortar of their villa or apartment, they do not necessarily own the land.
For freehold property, an expat owner does receive the title deed and can buy and sell as a homeowner normally would. However, laws are not yet tried and tested. A case in point is what might happen when at some stage the developer, or ‘land owner’, decides to demolish an apartment building to construct something else – an unlikely scenario perhaps, but with no case studies to refer to, a possible one.
“All transactions – buying, selling or leasing – currently have to go through the developer, which means additional transaction costs,” says Charles Neil, chief executive of UAE-based Landmark Properties. “Because you’re restricted in what you can do, it’s putting people off buying to some degree.”
There is also the issue of ‘usufruct’. As Michael Earley from the Qatar office of legal firm Clyde & Co explains, there are areas in Qatar where foreigners can invest under usufruct law, also referred to as ‘imperfect ownership’. The three elements of usufruct, derived from the Latin, are ‘usus’, the right to occupy and use the property, ‘fructus’, the right to the ‘fruits’ (income or benefit) from the property, and ‘abusus’, the right to dispose of or sell the property. Any contract that lacks any of the three elements is less than full ownership.
“As is the case in many jurisdictions in the region, the freehold ownership of land by foreigners is prohibited except in certain specifically designated locations,” says Earley. “Instead, foreigners seeking to use land are generally issued very long-term leases over properties (essentially usufructs), meaning that they have a right to use and enjoy the fruits of the property, but cannot sell or otherwise dispose of the property.”
Even in ‘freehold’ areas such as The Pearl, the fashionable business area West Bay Lagoon, and mega city development project Lusail, most of the properties in development are apartments. Hence, like many other countries including the UK, they fall into the category of long-term leasehold.
Qatar also doesn’t have any real property regulations to protect investors at present, adds Earley. Some new basic regulations will soon be enforced, but these mainly relate to the requirement for property agents to work for a bona-fide registered property company.
The message – check the last detail of ownership status before laying down your cash.
Pic credit: Idea go/ FreeDigitalPhotos.net
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