Tag: Real Estate

Dubai’s development market is one of the most dynamic and rapidly growing real estate markets in the world, with consistent demand for residential, commercial, and mixed-use developments.

 

Developers frequently use Joint Venture (JV) agreements to collaborate on large-scale real estate and infrastructure projects, allowing them to share both the risks and rewards of large-scale developments.

 

In this inBrief, we discuss the types of JV agreements as well as their benefits, UAE specific considerations, and the key terms that should be considered to assist in reducing risks and disputes between JV parties.

 

Types of JV agreements

 

– Equity-based JV agreements: two or more partners create a new entity and share ownership, risks and profits based on their equity stakes.

 

– Special Purpose Vehicle (SPV): a common structure for JV agreements in real estate, where a new entity is created to handle a specific project, shielding the parent companies from some risks.

 

– Contractual JV agreements: parties collaborate on a project without sharing ownership of the project or forming a separate legal entity. Instead, the JV is governed purely by the terms of the agreement.

 

Benefits of JV agreements

 

JV’s offer several strategic advantages for developers and business partners such as:

 

– Access to capital and resources: developers can pool resources, capital and investors, allowing them to take on larger, more complex projects than they could on their own.

 

– Expertise and specialisation: developers can leverage each other’s expertise, for example, one partner might specialise in land acquisition, while another specialises in construction or design.

 

– Flexibility: JV’s allow developers to structure the agreement in a way that best suits the needs of the project, adjusting ownership percentages, management control, and profit sharing based on the contribution of each party.

 

– Risk sharing and liability: one of the main benefits of JV agreements in real estate is risk-sharing. The financial and operational risks associated with large projects are divided among the partners, reducing the exposure of each developer.

 

Key Considerations for Joint Venture (JV) Agreements in Dubai

 

When structuring a JV agreement in Dubai, developers should take into account the following important legal and regulatory aspects:

 

– Regulatory approvals: before commencing any development, developers must obtain regulatory approvals from the Dubai Land Department (DLD) and other relevant authorities. The JV agreement should include clauses that ensure compliance with local regulations, including but not limited to registration requirements, zoning laws, environmental standards, and such other requirements as may be applicable.

 

– Dispute resolution: in case of disputes, the JV agreement will typically contain provisions for dispute resolution, such as court, mediation or arbitration, especially when international parties are involved. The Dubai International Financial Centre (DIFC) and the Dubai International Arbitration Centre (DIAC) are common bodies for resolving such disputes when dealing with such complex matters.

 

The JV agreement should cover the following key elements:

 

– Project Scope and objectives: define the project’s location, size, design, budget, timeline, and expected returns.

 

– Ownership and control: a clear outline of the equity split, voting rights, decision-making authority, and dispute resolution procedures.

 

– Capital contribution and financing: specify each party’s capital contribution, identify debt financing sources, outline risk allocation, and processes for capital calls, distributions, and reinvestments.

 

– Profit sharing and exit strategy: clearly define how profit and loss sharing will be allocated, outline any preferred returns, and exit strategies such as selling, refinancing, or holding the project.

 

– Governance and reporting: establish the JV’s governance structure, assign key personnel, and set out meeting frequency, reporting requirements, and accounting methods.

 

– Contingencies and termination: outline the procedures for handling breaches of the agreement, including applicable penalties, termination conditions, and options for mutual buyout.

 

JV agreements are, therefore, a key tool for developers in Dubai, enabling them to pool resources and expertise for large-scale projects. These partnerships allow developers to share both the risks and rewards, making complex projects more manageable and financially viable. ■

Effective 6 April 2025, the United Kingdom (UK) is set to implement significant changes to its non-domiciled (non-dom) tax status, transitioning from a domicile-based to a residence-based taxation system. This will result in all UK residents being taxed on their worldwide income and gains, eliminating the previous remittance basis that allowed non-doms to pay UK tax only on income brought into the country.

This update and change to the UK non-dom rules shall have substantial tax implications for those who have previously relied on their non-dom status, especially those with significant foreign income or assets. Key changes being:

 

Expansion of the Tax Base: as noted above, the new rules will subject more foreign income and assets to UK taxation, especially for long-term residents. This will extend to inheritance tax on foreign assets.

 

Reduction of Tax Benefits: foreign income relief will be reduced, with reductions and limitations on the time period for claiming tax relief. Such changes will diminish tax optimisation opportunities for high-income individuals.

 

Temporary Concessions: whilst there will be a temporary repatriation facility offered with a reduced tax rate on remitted foreign income, this will be limited in time.

 

Increased Administrative Burden: overall the new system is set to require more meticulous management of tax obligations, leading to additional legal and accounting costs.

 

The UK’s shift from a remittance-based tax system to one focused on tax residence years has raised concerns, particularly amongst high-net-worth individuals (HNWIs), making the UK less appealing to wealthy individuals, placing a higher burden on foreign nationals with significant wealth and assets, and prompting some to consider relocating to countries with more favourable tax regimes.

 

In 2024, nearly 1,000 HNWIs from the UK relocated to Dubai, contributing to a broader trend of wealthy individuals moving to the United Arab Emirates (UAE). A London-based investment migration consultancy predicted that a total of 6,700 millionaires would move to the UAE by the end of the year, with a significant portion coming from the UK.

 

Why the UAE?

 

Despite the introduction of corporate tax in the UAE in 2023, the UAE still offers a considerably more favourable tax environment for HNWIs and businesses compared to the UK. Key benefits include:

 

 

Low or Zero Taxes for Individuals

 

• • Income Tax: one of the biggest draws for HNWIs is that the UAE does not impose personal income tax, meaning that individuals, including business owners and executives, can retain more of their income. In the UK, the income tax rate can reach up to 45% for individuals earning over £125,140 annually.

 

• • No Capital Gains Tax: currently there is no capital gains tax in the UAE, which is particularly beneficial for those individuals involved in investment, real estate, or other ventures where they may sell assets and retain 100% of the profits.

 

• • No Inheritance or Estate Tax: the UAE’s lack of inheritance tax means that wealth can be passed on to heirs without tax penalties, making it attractive for estate planning.

 

 

Corporate Tax Incentives for Businesses

 

• Corporate Tax Rate: despite the UAE’s introduction of a 9% corporate tax in 2023 (on profits above AED 375,000), the corporate tax rate in the UAE still remains one of the lowest in the world. For example, corporation tax in the UK is 25% (on profits above £250,000).

 

• Free Zones: the UAE has over 30 free zones where businesses may operate with the benefit of profit repatriation, and tax exemptions for a set period.

 

• Double Taxation Treaties: The UAE has over 100 treaties to avoid double taxation, simplifying compliance for global operations.

 

 

Other Benefits

 

• VAT Exemptions and Refunds: in comparison to the UK’s standard rate of 20%, the UAE has a low 5% VAT rate, with exemptions and the possibility of claiming refunds on expenses, making Dubai attractive for international trade.

 

• Residency Visa: the UAE introduced Residence by Investment, which is aimed at providing long-term residence to foreign investors, entrepreneurs, and talented individuals who make significant investments in the country. Business owners, investors and entrepreneurs can obtain residency visas for up to 10 years making it easier to reside in the UAE.

 

• Competitive Setup Packages: freezones offer affordable company setup packages, covering licensing, office space, and visa processing to streamline the process.

 

• Global positioning: The UAE’s global position makes it easy for HNWIs and businesses to have ease of access to global trade across Europe, Asia, Africa and the Americas.

 

All of these factors contribute to the UAE’s growing appeal to UK HNWIs and businesses looking to reduce their tax burden, and utilise and benefit from tax advantages supporting growth and profitability. ■

Climate change is affecting the world, and its impact is notably most seen in the rise in sea levels and flooding from major weather systems, as evident in the recent events in Florida in the US. These changes directly threaten oceanfront communities and the local real estate market.

 

Oceanfront properties, once considered prime real estate, are now facing significant devaluation globally due to the encroaching threat of rising waters. However, interestingly, while this trend is evident in many parts of the world, Dubai presents an anomaly where oceanfront property prices continue to defy the global trend, with property prices showing resilience and, in some places, even increasing.

 

The Global Scenario: Rising Water Levels and Falling Property Prices

 

Climate change has accelerated the melting of polar ice caps, leading to rising sea levels. According to a report by the Intergovernmental Panel on Climate Change (IPCC), global sea levels have risen by about 20 centimetres since 1880, with the rate of increase doubling over the last two decades. This rise poses a significant threat to oceanfront communities, leading to frequent flooding, erosion, and the potential eventual submersion of low-lying areas.

 

In US states such as Florida, a region notorious for its vulnerability to rising seas, property prices in certain oceanfront areas have dropped by as much as 20% since 2013. Additionally, the demand for houses with higher elevation has risen. Similarly, the same trend has occurred in other states, such as New York, Massachusetts, and California where oceanfront property prices are losing significant value. In Nantucket, Massachusetts, a beachside residence that should have sold for $2 million sold instead for a fraction of the price at $600,000. Notably, the drop in prices reflects the evident risk not just to the properties but also to life. The drop in property values has occurred over the last 10 years with the increase in flooding, along with the increase in hurricanes and their power.

 

However, although the UAE’s long coastline increases its vulnerability to rising sea levels and with the UAE Ministry of Climate Change and Environment estimating sea level rises in the Gulf by as much as 50 centimetres by 2050, the UAE continues to see a rise in oceanfront property values, unlike other areas of the world.

 

Dubai: The Exception

 

In contrast to the global trend, Dubai’s oceanfront property market continues to thrive. The city, known for its ambitious real estate projects, has managed to maintain, and even increase, the value of its oceanfront properties.

 

Dubai has made significant investments in infrastructure to address the risks of rising sea levels most notably the use of innovative architectural design, preventative measures and future planning:

 

i.) Palm Jumeirah and Palm Jebel Ali are artificial islands which were designed using advanced engineering techniques to guard against flooding and erosion.

 

ii.) Plantation of Mangroves; Dubai is already looking to bolster its sea lines and reduce the impact of climate change in the reintroduction and addition of mangroves. Success has already been seen in Abu Dhabi on this front.

 

iii.) Responsible and regenerative development; new up and coming developments are dealing with environmental and climate issues at hand, most notably the rise of and introduction of greener living spaces, and forest landscaping.

 

Further, in order to combat the environmental challenges posed by global warming, the Government of Dubai has implemented certain programmes and zoning laws which include the Green Building Regulations & Specifications, Coastal Zone Management Framework, and the Dubai Urban 2040 Master Plan. In Dubai, the government and real estate developers have invested in sand banking i.e., raising the natural elevation of the ground level from the sea level.

 

Dubai’s ability to use technology and advances in engineering alongside its driven and notable advanced plans to tackle and deal with climate change issues such as erosion and flooding in advance, arguably, is what drives investors and realtors’ confidence in the oceanfront real estate market. Notably, Palm Jumeirah has seen an increase of 54% in the mean property price recently.

 

But what are the legal considerations and implications that investors should be aware of?

 

Disclosure: ahead of any purchase an Investor should enquire and request a full disclosure of the property’s history, including any flooding history.

 

Insurance and Liability: investors should be aware of the potential risk of increased insurance premiums with the potential that an oceanfront property becomes uninsurable.

 

Zoning and Development Laws: although other global cities are having to review and implement stricter zoning laws, Dubai’s rapid development is factoring in the laws and codes implemented by the government including, Dubai Municipality’s Green Building Regulations and Specifications and Dubai 2040 Urban Master Plan.

 

Conclusion

 

Going forward, the risks posed by rising sea levels are a threat to oceanfront real estate. Innovative real estate development solutions will need to be utilised and invested in by developers and governments. Further, alternative approaches to development and areas of development shall need to be considered, including developing inland water bodies such as lakes or lagoons that replicate the aesthetics and lifestyle of oceanfront living without the rising sea level risks. Dubai has already developed master communities with inland lakes and lagoons, and continues to be at the forefront of this design with new lakes and lagoons developments underway. These inland real estate developments combine luxury living with a practical response to the growing threat of coastal erosion and flooding.

 

Climate change is a global issue, and rising sea levels do not respect national borders. Therefore, there needs to be a cohesive and robust international response to dealing with the increasing challenges of rising sea levels.  ■

Dubai’s real estate market has experienced significant growth in prices in the past few years. The average sales prices for residential properties in Dubai increased by 12% between 2021 and 2022 to reach AED 1,203 per sq ft. This is expected to increase even more by the end of 2023. In this market, off-plan properties appear to be a more affordable option to many purchasers as compared to completed properties. For the end user, low first payments and attractive payment plans mean affordability. This has been an important factor in boosting the off-plan market in Dubai over the past few years.

 

However, it is critical that prospective buyers do their homework; conduct due diligence; engage a reputable lawyer who understands the off-plan market in Dubai and can protect their rights; and ensure that they purchase a quality off-plan investment.

 

While the Dubai Land Department (DLD) recorded 14,712 off-plan sales in Q2 2023, memories of the 2008/2009 market crash still loom large. As a result, it is important to be aware of applicable real estate laws.

 

Legal Protection

 

Off-plan real estate investment in Dubai is governed by a set of real estate laws and regulations aimed at protecting buyers’ interest, the most important of which are discussed below.

 

The Interim Registration law (Law 13 of 2008 (as amended)) requires all sales (and all other disposals) of off-plan units to be registered on the interim real estate register maintained by the DLD. If a sale is not registered, it is considered null and void.

 

The Interim Registration law also governs the developer’s right to terminate a sale contract for an off-plan unit in the event that the buyer defaults, and sets out (i) the termination procedure to be followed; and (ii) the monies that may be retained by the developer in the event of termination which is linked to the percentage of completion of the off-plan unit as follows:

 

• if the percentage of completion of the unit exceeds 80%, the developer may retain up to 40% of the price of the unit specified in the off-plan sale contract;

 

• if the percentage of completion of the unit is between 60% and 80%, the developer may retain up to 40% of the price of the unit specified in the off-plan sale contract;

 

• if the developer has commenced construction work on the project pursuant to the designs approved by the competent authorities and the percentage of completion of the real estate unit is less than 60%, the developer may retain up to 25% of the price of the real estate unit specified in the off-plan sale contract; and

 

• if the developer has not commenced the execution of the project for reasons beyond his control and without negligence on his part, the developer must refund all purchase price amounts paid by the buyer.

 

Furthermore, the Trust Account law (Law 8 of 2007) protects buyers by requiring developers selling off-plan units to be registered with the Real Estate Regulatory Agency (RERA), and to deposit all amounts paid by purchasers into an escrow account with an escrow agent (bank) accredited by the DLD. The amounts deposited in the escrow account are exclusively allocated for the purposes related to the development of the particular real estate project (and directly related activities) and may only be withdrawn by the developer on application to RERA in accordance with the law.

 

Although off-plan buyers can take comfort in the protections afforded by the legislation described above, we recommend that purchasers check that:

 

• the real estate project is registered with RERA;

 

• there is an escrow account for the real estate project;

 

• the percentage of completion of the real estate project and the expected date of completion;

 

• the developer is registered with RERA;

 

• the developer owns the land or there is a development agreement between the owner and the developer; and

 

• the developer has the required permits and approvals from the DLD and RERA to sell units off-plan in that particular real estate project.

 

Dubai on the Rise

 

Dubai’s off-plan real estate laws and regulations serve to increase investor confidence and attract more foreign investment.

 

With respect to the market, there are attractive deals to be had from developers in Dubai today and off- plan enquiries remain high. However, today’s off-plan buyers should shop around and choose a quality product that will deliver long term sustainable returns, or provide a stable, affordable home.

 

Dubai remains a very attractive proposition for domestic and international investors alike with globally high rental yields and reasonable prices per square foot. Dubai itself continues to attract hard working and entrepreneurial people from across the world and the prospects of the market are very bright as more people choose to settle and live in the UAE. There is much to be positive about regarding the future of the Dubai property market and the off-plan sector will continue to play a big role in such market. ■

Introduction

 

Off-plan properties are those which are sold in advance of completion and can offer attractive payment plans and potentially high returns on investment. Therefore, the acquisition of off-plan property has always been a favored form of investment for those seeking to profit from the booming Dubai Real Estate market.

 

However, it is vital for buyers to understand the risks involved. The governing document that is put in place between developers and buyers to regulate the purchase of off- plan property is a Sale and Purchase Agreement (SPA).

 

In this article we will examine a number of key clauses usually present in a SPA to which buyers should pay particular attention.

 

Key clauses

 

1. Completion and Risk

 

The completion clause present in a SPA typically outlines the date upon which a developer anticipates that a property will be completed. Generally, such a clause will permit a developer to vary this date for specific reasons if required (typically for a period of twelve months). A buyer of off-plan property should keep in mind such obligations under the SPA including financial obligations when reviewing the completion clause as it is necessary for these to be fulfilled by the completion date specified in order for a buyer to take possession of a property.

 

The passing of risk is also dealt with within a completion clause in a SPA. It is vital that buyers of off-plan property understand fully at what point they will assume rights and responsibilities including risk in relation to a property. The passing of risk occurs upon the handover of a property to a buyer.

 

2. Purchase Price

 

A SPA will contain a clause outlining the amount and timing of the purchase payment required for the buyer to acquire a property. A payment schedule is typically attached which a buyer of off-plan property should ensure that they can adhere to as a failure to maintain these payments may result in the termination of the SPA and the forfeiture of sums paid to a developer. This clause may also set out the consequences of a late payment, which would usually involve the application of interest.

 

3. Handover

 

A handover clause will specify the condition in which an off-plan property will be handed over to a buyer. A SPA will usually detail the quality of finishes, fixtures and fittings that a developer should provide as well as outlining the process in relation to any defects present in the property and the repair of same. Typically, buyers of off-plan property are permitted to inspect a property in order to identify any deficiencies present. The handover clause is essential to ensure that the buyer receives the property in the agreed condition.

 

4. Restrictions on Disposals

 

Buyers of off plan property do not receive a full title deed to a property until completion occurs. Until such time, they acquire the right to own a property once it is completed provided that they comply with their obligations as contained in the relevant SPA.  Many investors often seek to sell off-plan properties during the construction process to take advantage of spikes in property prices. However, it is important to note that developers will usually include restrictions in a SPA that will limit a buyer’s right to dispose of an off-plan property during construction. Such restrictions will usually be linked to a payment of a certain percentage of the overall purchase price for an off-plan property.

 

5. Termination

 

The termination clause contained in a SPA will outline the circumstances under which a SPA may be terminated by either party and the consequences of such termination. Termination usually consists of a failure to meet contractual obligations (such as payment), inability to secure financing, insolvency of one of the parties, or any other specified circumstances. Typically, such clauses are drafted in favour of the developer and a buyer of off-plan property should review these clauses carefully to ensure that they understand the circumstances that could give rise to a termination of a SPA and their ramifications.

 

6. Dispute Resolution

 

A dispute resolution clause outlines the process for resolving any disputes that may arise between the buyer and the developer. The SPA should specify the method of dispute resolution, such as court, arbitration, mediation, or other forms of alternative dispute resolution. The dispute resolution clause is essential to provide a clear process for resolving any disagreements between the parties. Buyers of off-plan property should be mindful of this clause and ensure that the dispute resolution mechanism prescribed is acceptable.

 

Conclusion

 

Acquiring off-plan properties can be a lucrative form of investment, however it is important that buyers conduct the essential due diligence on the specific project, the developer and the SPA before making such an investment.

 

Given the potential risks involved in such an investment, potential buyers of off-plan property in Dubai should seek the advice of a qualified lawyer in reviewing and explaining the terms and provisions of an SPA prior to signing. ■

 

What has happened?

 

On 27 October 2022 Sharjah Law No. 2/2022 was issued by Sultan Bin Mohammed Al Qasimi, Ruler of the Emirate of Sharjah expanding the rights of ownership of real estate within the Emirate to foreigners.
In this inBrief, we look at the implications of this new law and what the expansion may mean for the real estate market in Sharjah.

 

Previous Position

 

Previously under the laws of Sharjah, foreign ownership of real estate was limited to the right to hold a usufruct over property in specified areas for a maximum period of 100 years only. Non-UAE or GCC nationals were not permitted to own property on a freehold basis. A usufruct right is a limited right that permits the right holder to use and enjoy land owned by another subject to various contractual and legislative restrictions.

 

Therefore, whilst foreign nationals could hold such a property right, the right itself was quite restrictive and limited the foreign nationals’ ability to deal with the property. The preclusion of foreign investors from participating fully in the Sharjah real estate market has meant that it has not experienced the same level of growth as that of its neighbor Dubai, which has permitted such investment in designated areas for some time and has experienced a further surge in foreign investment since the beginning of the conflict in Ukraine.

 

What has changed?

 

Sharjah Law No. 2/2022 amending Article 4 of Sharjah Law No. 5/2010, has restated the general position that the right of property ownership in Sharjah is limited to UAE and GCC nationals. However, it provides for a number of exceptions whereby the right of ownership can also occur, this includes areas and projects specifically determined by Sharjah Executive
Council. It is anticipated that this will extend to the provision of rights of full ownership to foreign nationals in the specific areas and projects identified. We have summarised these exceptions as follows:

 

a. transfer by inheritance by virtue of a sharia inheritance notice;

 

b. through assignment by the owner to one of the relatives up to the first degree, as set forth in the implementing Regulation of the law; and

 

c. ownership in areas and projects of real estate development, as per the controls determined by the Sharjah Executive Council.

 

Conclusion

 

Whilst the specific areas and projects remain to be fully identified by the Sharjah Executive Council, the granting of full ownership rights to foreign nationals is a positive step toward the encouragement of direct foreign investment in the Sharjah real estate market. Foreign investors that have been priced out of the Dubai market due to increasing property prices may now be more inclined to invest in the Sharjah market.

 

It should be noted that the tested legal and administrative framework that exists in Dubai which provides protection to foreign investors through various laws concerning the ownership and maintenance of jointly owned property, the sale of off-plan properties and the governance of escrow accounts relating to same has not been fully implemented in Sharjah thus far. Therefore, whilst Law No. 2/2022 is a welcome development, it may take some time before a complementary legal structure is in place that will provide foreign investors with the necessary comfort to significantly invest in this market. ■

 

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For more detailed information, please do not hesitate to contact Shahram Safai at ssafai@afridi-angell.com.