Since September 2019, the UAE has amended its legislation regarding the activities of companies whose functions include the management of jointly owned properties. It concerns developers and hotel operators and regulates the management of a wide range of properties.
- Who is affected by the amendments?
- Changes in the legal framework
- Innovative solutions to management and ownership
- New opportunities with jointly owned property
- Help in home hunting and purchase in the UAE
The amendments affect large construction projects (Master projects) which are present in most communities in Dubai and Abu Dhabi and traditionally in demand as investment properties. These are not only hotels but also residential complexes, office buildings, cottage villages, where joint property ownership is allowed. The owner can own a separate building element (a studio or apartment), while acting as a stakeholder in common areas: swimming pools, park areas, playgrounds, internal common areas.
Under the new law, Owners’ Association is no longer responsible for the management of the common areas within the joint property. Instead, licensed management companies regulated by RERA will replace them in the rights and obligations. If they cannot fulfill their obligations, the owners can file a complaint against the management company. The regulator notifies the company and requires clarification and elimination of the reasons for the complaint. Failure to respond will cause penalties. With repeated violations, the license can be revoked.
The law ensures:
- Strict control over the budget rate allocated for the maintenance of jointly owned property. It cannot be changed, as the need for spending must be confirmed by an independent auditor. The rate will not be approved by the regulator without verification of expenses and justification for an increase.
- Appointment of management companies. In Dubai, management companies are assigned a property to oversee, depending on a category it belongs to. Joint properties now fall into three classifications: major projects, hotel projects, and real estate projects other than the first and second categories.
The last category is the most common, since it includes residential apartment buildings and shopping centers. Management companies are no longer appointed by the decision of the owners’ meeting. Now RERA appoints a facility management firm to oversee common areas of the jointly owned real estate project based on a tender result. In case of unfair provision of services, the company can be replaced by another one.
These measures are designed to improve and simplify the management of jointly owned property, depending on the real estate market conditions.
According to Sultan Butti bin Mejren, Director-General of DLD, the joint ownership initiative is fully supported by the authority. The first stage was the change in legislation, and the second was the implementation of an initiative to separate documents confirming the right of joint hotel ownership.
This is expected to attract investors with a limited budget and bolster the real estate market. Not every expat can afford to invest in an entire hotel. With the new legislation, several people can own a single property unit, with each owner having a title deed. The law provides for not only ownership but also the disposal of real estate. Each unit can be sold, pledged, or transferred into the possession of other parties.
It opens the following possibilities:
- You may use mortgage lending for property purchase.
- Sale or re-registration to relatives is allowed.
- The right of inheritance is not limited.
More properties allowed for sale to expats are expected to boost overall home sales. Considering that Dubai is one of the most popular tourist destinations, the new law would make the hotel industry more competitive.
This scheme has been working successfully for a long time in developed countries. It is simple:
- A person purchases as many apartments as they can afford.
- Once or several times a year, the owner comes to stay in their apartment for the period negotiated contractually.
- All the rest of the year, the owner’s property is overseen by the management firm.
The profit is divided depending on the agreement and can be as much as 50% to 50%, or 70% to 30%, with the buyer receiving smaller percentage. But even this approach is beneficial. This is passive income in its purest form, without the need to come to the country or resolve organizational issues.
The only expenses incurred by the owner relate to regular repairs. On average, the annual return on investment can be from 3% to 6%, depending on a hotel and its popularity.
The idea still needs to be widely implemented in Dubai, although it mostly concerns apartments so far, not large units. The law is aimed to reduce the financial burden and prompt the inflow of investments into the country’s economy. Primarily intended to spur investments in luxury real estate, the initiative will make it more affordable. As a result, joint ownership is secured at the governmental level and allows you to get a net profit with limited investments.
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