Real Estate Development in the Emirate of Sharjah

Introduction:

In 2018, the Sharjah Executive Council introduced a legal framework governing real estate development projects in Sharjah. Executive Council Resolution Number 34 of 2018 on Selling Real Estate Units in the Emirate of Sharjah is worth being thoroughly studied. In this article, we will review some of the most important aspects of the resolution to keep developers and real estate agents informed of what has changed. The authority in charge of the application of the regulation is the “Sharjah Real Estate Registration Department’s (‘SRERD’)”.

 

The regulatory missions of the SRERD

Thanks to the regulation, the SRERD acquired more regulatory power over real estate projects, including the capacity to oversee and monitor off-plan developments. Especially, the SRERD oversees the project registration, marketing and sales and the licensing of developers. The SRERD will also work with several governmental and non-governmental authorities in the Emirate of Sharjah regarding the issuance or suspension of relevant licenses, as well as the oversight of development projects. Regarding project registration, the resolution provides that it is not only open to UAE and GCC nationals, foreigners may also register their projects provided they receive the approval of the ruler of Sharjah, Sheikh Sultan bin Muhammad Al Qasimi, whether they are UAE residents or not.

 

The obligations related to project registration

The SRERD is committed to overseeing the development projects in the Emirate of Sharjah. To do so, the resolution requires the developers to comply with the following:

• The developers must open a bank account in the name of the project, from which funds will be allocated for construction and management of the project per the resolution;
• The developers must provide the SRERD with a copy of the building permit issued by the competent authorities; and 
• The developers must provide SRERD with a copy of the certificate of approval of name for the project issued by competent authorities.

 

Bank requirements

Another requirement provided by the resolution is the obligation for the developers to provide the SRERD with a bank guarantee as a condition of project registration (20 per cent of the project value). The bank guarantee is divided into four parts by the Resolution, with the first, second, and third portions released after the developer provides a technical report confirming the project completion percentage assessed by the appropriate authorities in the following manner, with each part representing 25 per cent of the total guarantee: The first part after 25 per cent of project completion; The second part after 50 per cent of project completion; The third part after 75 per cent of project completion.

Concerning the delivery of the last 25 per cent of the total guarantee, the Resolution provides the following requirements:

• the developer has remedied any infractions under the Resolution or applicable legislation if any; the developer has released any mortgages affecting the property;
• the project’s connectivity to public services and utilities;
• Sharjah Electricity and Water Authority has issued a clearance certificate;
• Sharjah Municipality or the Roads and Transport Authority have issued a certificate of completion;
• the conditions and obligations arising from the plot purchase contract and with the government authorities have been met; 
• the development project has been subdivided and the areas determined in a scheme approved by the Sharjah Directorate of Town Planning and Survey;
• SRERD has issued title documents (freehold or usufruct) for the project’s units.

 

Registration fees and form requirements

Once again, the resolution distinguishes between UAE / GCC nationals and other nationals. For UAE / GCC nationals, the resolution stipulates that the seller must pay one per cent of the purchase price and the purchaser must pay two per cent of the purchase price. For other nationals, the resolution requires the purchaser to pay four per cent of the purchase price. The SRERD demands that the sale contracts are drafted in the form ratified by them, otherwise they will not accept to register such sale contracts. For more legal clarification in this regard, approach real estate lawyers in UAE.

 

Marketing requirements

The resolution introduced requirements regarding the marketing of development projects, especially regarding the coordination with the SRERD and other relevant authorities. Indeed, the SRERD and other relevant authorities will be responsible for issuing advertising permits for the marketing and sale of all properties. All owners, developers, and licensed real estate brokers in the Emirate of Sharjah must obtain written approval from SRERD before advertising properties for sale in various media, social networking sites, and other means. Finally, to market projects in the Emirate of Sharjah, licensed real estate agents from outside the Emirate must first acquire SRERD approval.

 

Management requirements

The resolution states that a developer retains ownership of at least ten per cent of the units in a project after completion. The resolution also allows the developer to grant the SRERD a bank guarantee equal to ten per cent of the project value as an alternative to that strategy. This guarantee must be irrevocable and payable upon demand. Finally, a developer may not sell the retained units or request the release of the bank guarantee unless it can show proof of the formation of a unit owners’ association for the project, including the election of its board of directors, under Law Number 4 of 1980 regulating Ownership of Multi-Storey Buildings and any other applicable legislation.

 

Cancellation, violations and penalties

The existing framework allowing a developer to seek cancellation of a registered project is largely preserved by the resolution. Developers must still submit a cancellation request to the SRERD and provide supporting documentation. If the SRERD accepts the developer’s application at its discretion, the developer must subsequently follow a notification protocol. Importantly, using the prescribed form of declaration, notification of the intended project cancellation must now be published in two local newspapers in both Arabic and English. The developer must additionally notify the purchasers of the potential cancellation of a development project via registered mail, as per the prior regime. The deadline for purchasers to disclose to the SRERD their objections to the cancellation application is fifteen days from the date they receive the developer’s notification. If the applicable period passes without protest from any purchaser, the SRERD and the relevant competent authorities will complete the cancellation procedure for the project’s registration or suspension of services. If, on the other hand, a buyer opposes the project’s cancellation, the SRERD will delay the cancellation procedures until the developer has resolved all related disputes and objections within the time frame provided in the declaration.

The resolution expands the scope of violations and lists new ones that will result in penalties. The penalty regime mandates that: For violations of the Resolution and decisions issued thereunder, penalties may be levied; in the event of a repeat violation within one year of the first infraction, the penalty sum may be doubled. In the event of repeated violations, the developer’s license may be temporarily or permanently revoked or suspended by the relevant authorities. Finally, unless a defaulting developer fixes all infractions within the period designated by SRERD in line with the resolution, concerned parties must cease providing government services and stop all activities.

 

Conclusion

The resolution gives the SRERD, and other relevant authorities working in concert with SRERD, more regulatory authority over real estate development projects in the Emirate of Sharjah. The authority given to the SRERD to more rigorously monitor and ensure compliance by developers and other parties operating in the real estate market in the Emirate of Sharjah aims at improving the confidence of real estate investors. Developers, in particular, should familiarize themselves with these new regulations to ensure compliance going forward. The ability granted to the SRERD to more closely monitor and ensure compliance by developers and other parties operating in the Sharjah real estate market will most certainly increase investor trust in the industry. Developers, in particular, should get familiar with the new standards to assure future compliance and lawyers in Sharjah can help one in this regard.

Such a resolution aims at improving comparative advantages of the Emirate of Sharjah, the third-largest UAE emirate, in a country where so far Dubai and Abu Dhabi were the favourite ones for foreign investors. The Emirate of Sharjah also wants its piece of the pie, and to do so, it should improve the efficiency of its authorities. The resolution is the first step toward a potentially important development in the Emirate.