New Real Estate Laws

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A new property law issued earlier this month by Sheikh Humaid bin Rashid al Nuaimi is set to allow freehold ownership of land and property in Ajman for the first time.

The law, comprising Decrees 7 and 8 of 2008, will allow United Arab Emirates and Gulf Cooperation Council (GCC) citizens, as well as wholly-owned companies to acquire freehold rights to land and property within the emirate. Non-GCC buyers will also be allowed to acquire freehold rights in specially designated areas, to be determined at a later date. Alternatively, a 50-year leasehold may also be obtained.

The laws authorise the Department of Land and Property to act as sole regulator for the sector, including the registration of property rights and long-term lease contracts. Outward investment into the sector is also dealt with: bank guarantees amounting to 5% of the project must be deposited by investors and will be frozen until the project is completed. Developers will not be permitted to advertise new developments without the prior permission of the Department, and will be responsible for maintaining projects for 10 years following handover. Unlicensed realtors will be fined up to Dh100,000 ($27,225).

The new regulations are seen as a response to the growing sophistication of Ajman's property sector, which is currently experiencing a surge in growth. Over two dozen projects, ranging from tower blocks to boulevards, towns to whole cities, are currently under construction in the emirate. Market anticipation resulting from the new supply has led to residential prices jumping from Dh350 per sq ft to Dh500 in the past six months alone, according to local reports.

However, the experience of other rapidly emerging emirates proves that regulating the real estate sector is not as simple as merely issuing a new law. Ras Al Khaimah's (RAK) new rental law, issued at the end of May, has recently been suspended until October due to unintended consequences resulting from one of its articles. The law was intended to cap residential rent increases at 5%, and commercial rates at 7%.

The article in question however (no 24), had been interpreted as giving landlords the right to evict tenants - a common ploy in real estate markets where rent increases have been capped. In such instances it becomes considerably more profitable for landlords to evict tenants at the end of their leases, and then charge new tenants a mark-up considerably higher than the official rate.

The Rental Dispute Authority (RDA), the body charged with mediating rental disputes in RAK, has requested clarification from the Emiri Court on the article in question. In the meantime, it will reimpose the previous 15% rent cap until October. It is hoped the measure will allow the RDA to deal with a backlog of cases, which have not been heard owing to the confusion over the new law.

Rapid growth in the Northern Emirates' real estate market may be leading to supply bottlenecks - and hence sharp practices of the sort the government is attempting to legislate against.

However, US financial services giant Merrill Lynch has issued a word of caution against over-supply in the coming years. Predicting that Dubai may switch from under to over supply within the next two years, a recent report on the GCC warns that "oversupply in Dubai may result in relocation away from the Northern Emirates".

In this sense, the new regulation from Ajman requiring a relatively large capital deposit is a sensible precaution against developers defaulting against future contracts. Teething troubles aside, a steady improvement in the quality of legislation affecting real estate in the Northern Emirates may prevent too hard a landing for the sector.

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