United Arab Emirates (UAE) government enacted a law in 2002 allowing expatriates to have freehold ownership of UAE properties. This was to boost the demand of properties thereby uplifting the value of real estate in UAE. During that time UAE economy was flourishing and a lot of property development were taking place in UAE. I researched on investing in UAE in early 2004, and found that the property prices were soaring unlike in other countries. I realized that the metropolitan city of Dubai was particularly benefiting from tourism as well as from oil export.
My interest in investing in properties in UAE was encouraged by the strict laws, safety and stability of the government.The government created Real Estate Regulatory Authority (RERA) and set up a regulatory frame work in Dubai. It also introduced ‘Escrow Law’ to safeguard the money invested into off-plan sales. By Escrow Law, the money invested in the development is ring fenced, and the developer cannot divert it even for other developments under their umbrella. I enquired with my cousin who was then living in UAE about good off plan developments and he suggested to buy an off-plan flat in Ajman.
Buying properties off plan is a straightforward process in UAE. For buying off plan properties, one cannot view the property, but need to trust the developers after evaluating their track records. Unlike in the UK, there was no stamp duty at the onset and since I bought off plan, there was no broker’s fee. In April 2005, I exchanged pound sterling to dirham and asked the foreign exchange company to transfer 10% of the flat value to developer in Ajman. This was a non refundable payment, and followed by the transfer I signed a sale and purchase document (S&P). I was required to pay the balance amount in twenty equal monthly instalments. One issue with the Ajman development was that, they seldom inform the progress of construction. To know the balance and to get the progress of construction, I needed to ring them occasionally and the call charges to UAE were prohibitive those days.
However to my relief, the construction of the development was completed on scheduled time. The authorities asked me to pay a sum towards the cost of handover of the property. Prior to booking tickets I paid the exact amount. But later I found that the authorities did not include one of my paid instalments. At the time of hand over in January 2007, I brought that to their attention, and asked to refund it. But that proved to be a Herculean task, and I authorised one of my friends to pursue the matter. The office administration of developers was very poor and the staff were irresponsible and careless.Ultimately I received the refund after one year. The developer did not help to get the title deed, but I have to go to the registration office and pay 2% of the sale value of the property as transfer tax, to get the title deed.
After the handover, I stayed in the flat for a couple of days. The flat was spacious for two bed rooms overlooking a playground, the décor and fittings were modern. I noticed there were not many convenience shops nearby and poor public transport.I approached Jabbar, the watchman from Kerala, India to introduce to me a tenant and handed over one set of keys to him. After returning to the UK, Jabbar contacted me and provided me with details of a Pakistani tenant whose references were satisfactory. Since then I signed the tenancy electronically, Jabbar put cheques in my bank account and the tenant said to have occupied the property.
When I visited UAE after a year, I went Ajman to view the
property. To my surprise I noticed six beds in the flat laid
decoratively in both bedrooms and lounge. I enquired about it with Jabbar, who clarified that they were for tenant’s six daughters. He
sounded a bit like drawing a veil over the matter, and I took it with a
pinch of salt. My doubt persisted and asked my friend to visit the
property, who later informed me that the tenant sublet the property. I
lodged a complaint in the Rent Dispute Committee (RDC) and prior to
the eviction order, the tenant vacated the property.
I
put the property in the market for renting out. This time the real
estate agent brought the details of a Kunjibappa from Kerala, India. He
was running a business in UAE, and as per the documentation, he was
economically sound. As usual, he gave the deposit and four cheques for
one year rent. Since he occupied the property in 2009, the cheques were
all credited for the first year. In the second year Kunjibappa stopped
paying for the cheques as he noticed some water leak on the ceiling, and
wanted to get it fixed. Jabbar, informed that the water leak was from
the flat above. When I visited the property next time, the ceiling
looked shabby. I approached the occupier of the flat just above mine.
There was water collection around the washing machine. I asked him to
sort it out with a plumber immediately, and made him aware that the
water was going down through the floor to my ceiling. I employed a building contractor to repair the damage on the ceiling and paint the room. But
after the repair, Kunjibappa did not pay any rent because of his business
loss. In UAE, bounced cheque is a serious issue, and police can take
stringent action against the defaulter. However, I did not report to the
police, but trusted the tenant that he would pay me back later. Soon
Kunjibappa vacated the property, paying part of the arrears.
Since
then, I advertised the property in Gulf News for letting, a tenant
named Hafeeb from Andhra Pradesh India, contacted me directly. That was
in 2011 and I spoke to him face to face by skype. He had good command in
English, and worked in a government office. He moved into the property
with his wife and two children. He was prompt, honoured cheques on time
and I did not have any issues with him. He moved out in 2012, and then I
felt it was better for me to sell the property. Therefore I did not try
to get another tenant, and the property was vacant for months. My
asking price had to be brought down as UAE had not come out of credit crunch and the flat needed attention.
An agent introduced Muhammad Khan who showed interest in buying. I signed a sale and purchase agreement and the purchaser paid 10% non refundable deposit. As in UK,
there is no solicitor or lengthy delays in UAE and there was no
borrowing from bank.But there were some formalities like
getting clearance certificate after paying utility bills and service
charge until the sale date. With the clearance certificate, myself and
the purchaser went to the registration office and closed the sale. As
one can see owning property in UAE and managing it is not a bed of
roses. In this blog, I explained in brief how real estate transactions
happen and how I managed the letting business in UAE.This was my first
investment in UAE, and the experience helped me a lot in the future
endeavours.
Dr.C.J.George FRCS
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