When I first considered this article, I was tempted to resort to the usual well-tried and well-tested lawyer-type topics. However, after having read the dozens of articles written by my learned legal colleagues appearing in the press and in specialist magazines (and having contributed a few myself), it would appear that by now only a very few individuals would not be aware that
(a) the legal position regarding freehold ownership by non-UAE nationals and non-GCC nationals is ambiguous and requires clarification,
(b) the immigration law and the practice and procedure for issuing residence visas to expatriate buyers (and their families) is ambiguous and requires clarification, and
(c) mortgage finance is now being offered to expatriates by some local banks and specialist organisations on specific terms.
Instead of rehearsing the same old material, I propose to base my comments around what, in my view, constitutes the seven deadly sins of buying property in Dubai (with apologies to the early Christian theologians who formulated the seven deadly sins) as demonstrated by various questions and statements from clients over the past two years or so. Each question or statement demonstrates and corresponds to a particular deadly sin - although in some cases it might require a slight stretch. See if you can recognise the specific sin before it is revealed at the end of each section.

“One doesn’t need a lawyer when buying a property in Dubai. I know what I am doing!”

It confounds me that so many persons (both individual and corporate) enter into property sales agreements with little or no consideration for the legalities involved, particularly in the re-sale or secondary marketplace. Large sums of cash sometimes pass from a buyer to the seller’s agent even before the sale formalities are completed. By failing to take even basic legal precautions, a buyer puts himself and his money in harm’s way unnecessarily. You know what they say: pride comes to a fall.

[Pride: the excessive belief in one’s own abilities.]

“There is no need to consider the detailed terms and conditions of any assignment or sales agreement, as one cannot negotiate the terms anyway. What’s the point?”

Having fully considered a contract’s terms before entering into one surely must always be considered sound advice in all circumstances and not necessarily for negotiation purposes. Sales agreements vary from developer to developer, and some differ dramatically. For example, one developer’s contract provides that if for any reason the freehold title cannot be transferred to a buyer it will automatically revert to a grant of a 50-year lease. Also, many agreements impose important obligations on a buyer (e.g. to insure or to pay service charges) which would be sheer folly and dangerous to ignore.

[Sloth: the avoidance of physical or spiritual work.]

“The procedure on an assignment is so simple. What on earth could possibly go wrong?”

Problems often arise in ensuring that individuals are properly authorised to proceed where the parties to an assignment cannot personally attend or are not individuals, i.e. are corporate bodies. Even where the parties do attend personally, one must ensure that they prove (to a reasonable standard) who they claim to be. It is prudent that one must be reasonably certain that proper and appropriate authority has been given and can be properly demonstrated. This is not particularly of high importance for the assignee (i.e. a buyer) to do so (although a fair amount of formality cannot be avoided), but it is most certainly required from the assignor (i.e. the seller) or his representative. It is advisable that any concerns are dealt with a few days before the assignment meeting to allow sufficient time to resolve any discrepancies that may arise in a calm and sensible manner. Where an assignor is an individual who does not personally attend, or is a corporate body, the developer will most likely (but not always) insist that there is a duly executed and notarised power of attorney, conferring appropriate authority on the assignor’s representative. Where offshore companies are buying, certain documents including the certificate of incorporation, memorandum and articles of association, list of directors, etc. should normally be presented to the developer, together with an original letter of authority from the directors of the company to the authorised person enabling that person to execute the assignment on the assignee’s behalf.

One should also ensure (where relevant) that there are no misunderstandings as to who is to be responsible for payment of the assignor’s agent’s brokerage fee, which is usually two per cent of the selling price, together with any assignment fee levied by the developer. I have witnessed some very angry scenes where these expenses have simply not been considered with each side strenuously arguing that these costs are the responsibility of the other. It is not uncommon for an assignor to quote a premium as inclusive of these not insignificant costs, which may amount to several hundred thousands of dirhams.

[Anger: manifested in the individual who spurns love and patience and opts instead for fury.]

“If an owner of Dubai property dies, whom will the property pass to?”

This is dependent on a number of factors, such as whether there is a will and/or if the owner is a non-Muslim. To mitigate these considerations, however, a practical tip would be to consider using an offshore company as an owning vehicle. Companies, of course, do not die as such, and in the majority of cases the shares can be distributed in accordance with the usual rules concerning succession in the place of the deceased shareholder’s domicile or will.

[Envy: the desire for others’ traits, status, abilities or situation.]

“If I buy property with a mortgage and I default in repayments, the limit of my liability is that the bank simply repossesses the property.”

Most certainly not! You will always be responsible for the balance of the unpaid principal amount, plus any penalties that you may incur by default. Even if the bank repossess and manages to sell the property, there is no guarantee that the sale proceeds would be sufficient to repay the unpaid principal amount, plus interest, plus penalties, plus costs. Some banks, as a condition of lending, require that the bank itself shall actually be the owner of the property until the loan has been repaid. The bank grants a lease to the buyer for the duration of the loan and charges ‘rent’ (equivalent to interest), and agrees to transfer ownership to the buyer on repayment of the loan. This arrangement may be unknown to most Europeans, but it is relatively common in this region and should be checked-out carefully.

[Gluttony: the inordinate desire to consume more than one requires.]

“The value of my property and the rental yield can only increase.”

This is probably the most difficult question to answer for a person (such as myself) born without the gift of clairvoyance. Many believe that rental yields will be upwards of ten per cent, and the prospects for capital growth are excellent. I think this belief is perhaps overly optimistic and relies more on a certain green-eyed monster than actual analysis of what is still an immature and unpredictable market. In the rental market, there are concerns of over-supply, and as far as capital appreciation is concerned, there are concerns about build-quality and build-duration. Neither of these considerations should be over-looked when evaluating the investment potential.

[Greed: the desire for material wealth or gain, ignoring the realm of spirituality.]

“I’d rather spend money on a car, a holiday or expensive lingerie for my girlfriend than waste time, money and effort owning property by way of an offshore company.”

It is not uncommon that offshore companies are used as property-owning vehicles for property in Dubai. Offshore companies from established jurisdictions such as the British Virgin Islands are popular with expatriates and have traditionally been used for tax and estate planning purposes. However, Dubai has recently introduced regulations that allow offshore companies to be set up in two distinct free zones. These free zones have broadly similar regulations, which permit offshore companies to own property in designated or approved developments. Set-up costs (of a few thousand dollars) and annual renewal costs (of a few hundred dollars) are relatively low although there are several restrictions on what these companies can do in Dubai. The regulations require a registered agent to be in Dubai and several firms of lawyers and accountants are registered to act as such. There should be plenty of cash left to buy that Porsche and visit La Perla!

[Lust: the inordinate caring for pleasures of the body.]

In conclusion, and, hopefully, without sounding too pious, I humbly leave you with the alternative seven deadly sins, expounded by the late and great Mohandas K. Gandhi, which, in my view, has a particular resonance to all expatriates wherever they find themselves working and living.

Wealth without work,
Pleasure without conscience,
Science without humanity,
Knowledge without character,
Politics without principle,
Commerce without morality,
Worship without sacrifice.