Legal ease

It seems the hottest buzzword in the UAE real estate market these days is "caution" and with good reason. The circumspect mood surrounding this year's Cityscape Abu Dhabi exhibition just a few weeks ago confirmed that no one is eager to take risks these days, at least in part because there have been few laws in place to protect buyers, developers and banks. Until now.

Policymakers in the capital are currently considering a suite of five laws, similar to the laws that were introduced in Dubai, to regulate the real estate market in Abu Dhabi.

"It is envisaged that these laws will work together in order to create a more transparent regulatory framework in which the real estate market may operate," says Duane Keighran, of Simmons and Simmons law firm. "The package of laws read together should increase investor confidence. Given the interrelation between the proposed laws, it is quite difficult to single out any one law as having the greatest impact on expatriate buyers, but I believe that all the laws together will have a positive impact on expat buyers and investors generally in Abu Dhabi."

Just what impact could this legislation have on the property market in the capital? Potentially, a huge impact if the laws help to calm the nerves of wary buyers and get the development industry rolling again. While the set of five laws are meant to work as a complete package, two will be of particular interest to future owner-occupiers - the escrow law and the strata title law.

Although business practices in the capital have historically been sound, a quick look down Shaikh Zayed Road explains why Abu Dhabi lawmakers are hoping to avoid some of the problems their neighbours have encountered.

"In Dubai, when the market was running very hot, people were leaping without really looking," says Scott Aitken, legal consultant at Clyde & Co. "Buyers would sign a one- or two-page reservation agreement, pay their 10% deposit, and then there was a payment schedule they had to stick to. At that time, it wasn't necessary for the developer to own the land that the building was meant to go on, there was nothing preventing developers applying those payments to other projects, and developers were entitled to take these payments even though construction hadn't commenced."

Though master developers in Abu Dhabi have long required sub-contractors to use third party accounts, one new law will make this official. "The escrow law means that the purchasers pay their money via a third party," says Scott. "The money is held by a bank in an escrow account so that the developer is not able to access that money until they've satisfied the government that they've done certain things, such as bought the land in the first place, carried out a certain level of construction, etc. It's all there to protect the purchaser."

The other most obviously proactive law on the table that stands to affect expatriate freehold buyers is the strata law. Anyone who has bought property in order to avoid paying the enormous rents currently on offer in the capital, has probably wondered what will happen once their 30-storey building is occupied by 1,500 individual landlords. Not to worry, says Scott. "Most developers have agreements included as part of the purchasers' contracts to allocate who will bear the financial responsibility of maintaining shared areas like lifts and foyers and common expenses for the building. The strata law will simply apply a uniform scheme so that both developers and owners will know with great certainty how their individual building, or the wider development of which they are a part, will be maintained and who will be bearing the cost of that maintenance."

So, will the five new laws be enough to bolster buyer confidence and turn the local economy around? In a word, perhaps.

"You'll never receive a guarantee that something is a wise investment or that you'll get a return on your money; that's just part and parcel of capitalism," warns Scott. "What these laws are designed to do is ensure that what someone is originally agreeing to acquire is what they get, so that as they pay their money away, they can do so in confidence that the property is going to be developed within a particular period of time."

In fact, as always, says Scott, it's all down to the fundamentals. "I don't personally represent individuals, but before you buy any property, you should seek professional advice from someone. Before you even go down that path, though, you need to think about exactly what it is you're trying to achieve.

"If you're looking to buy a property and flip it, those days are gone. You need to ask yourself, how much I have to put towards an investment, how much will it cost for me to service the debt, can I cover those costs with or without a tenant and if I need a tenant, what the rent is likely to be? Whether or not a purchase makes financial sense will be different for different people."

Scott also views speed as critical. "My sense is that the government is keen for the present uncertainty in the market to be resolved. The government sees that many people who are in a position to contribute to the property market in the capital - purchasers and developers alike - are sitting on their hands saying 'let's wait and see', and the quicker we can bring peace to the market place the better."

Laws

The five laws under consideration Duane Keighran, of Simmons and Simmons law firm, explains: The strata title law will regulate the ownership of co-owned buildings, dealing with the management of common areas, the establishment of co-owners' associations tasked with management of such buildings, as well as rules and regulations for the establishment of service charges that will probably be implemented by a building manager appointed by the co-owners' association.

A law that establishes a real estate regulatory authority will be tasked with monitoring and regulating the real estate market in Abu Dhabi.

The mortgage law will extend further protection to lenders and provide clarity surrounding the provision and registration of mortgages.

The development law is aimed at setting out the requirements for a developer to obtain certain administrative permits prior to launching off-plan sales.

The escrow law will codify the current market practice of the major Abu Dhabi master developers in requiring sub-developers to open escrow accounts into which the purchasers' money is deposited until the date of handover, and regulating the use of both purchaser funds and further construction financing that is secured from financiers. 6% AUH's predicted annual rate of growth till 2012.