Dubai’s off-plan real estate market has created opportunities for investors to purchase properties during the development stage and, in some cases, resell them before the project is completed. This type of transaction is commonly referred to as a property “flip”.
However, there is often confusion as to when an off-plan property may be flipped, particularly regarding the percentage of the project that must be completed and the percentage of the purchase price that the original buyer must have paid before a resale can take place.
The important point is that Dubai law does not prescribe a single percentage of construction completion or a single percentage of the purchase price that must be paid before every off-plan property can be resold. The position will depend on the legal registration of the property, the terms of the sale and purchase agreement, the developer’s requirements and the procedures of the Dubai Land Department.
What is Property Flipping?
Property flipping generally refers to purchasing a property with the intention of reselling it within a relatively short period, typically where the property’s market value has increased.
In the context of Dubai’s off-plan market, flipping commonly occurs when a purchaser buys a property directly from a developer and then sells his contractual interest in that property to another purchaser before the development has been completed and handed over.
Legally, this is more accurately treated as a resale or transfer of an off-plan property rather than a separate category of transaction known as a “flip”.
Under Dubai Law No. 13 of 2008 Regulating the Interim Real Property Register in the Emirate of Dubai, an off-plan property that has been registered in the Interim Property Register may subsequently be sold, mortgaged or otherwise legally disposed of. Importantly, transactions relating to off-plan properties must be properly registered; an unregistered disposition does not receive the legal effect intended by the parties.
Is There a Minimum Construction Percentage Before a Property Can Be Flipped?
There is no general percentage of project completion prescribed by Dubai law that must be reached before an off-plan purchaser is permitted to resell the property.
For example, Dubai law does not establish a general rule that a project must be 20%, 30% or 40% complete before a resale can take place.
The applicable construction milestone may instead arise from the sale and purchase agreement or the developer’s resale policy. Certain developers may restrict the transfer of an off-plan unit during the early stages of a project or require specified conditions to be satisfied before issuing the necessary no-objection certificate for the resale.
This distinction is particularly important because Dubai Law No. 19 of 2020, which amended Law No. 13 of 2008, does refer to construction completion percentages such as below 60%, between 60% and 80%, and above 80%. However, those percentages relate principally to the remedies available to a developer when an off-plan purchaser defaults on his contractual obligations. They are not statutory thresholds determining when an investor is entitled to flip a property.
Accordingly, construction progress should not be confused with the contractual conditions imposed by a developer for approving a resale.
How Much of the Property Price Must Be Paid Before Flipping?
Similarly, Dubai legislation does not impose one fixed percentage of the purchase price that every buyer must pay before reselling an off-plan property.
In market practice, developers commonly require the original purchaser to have paid approximately 30% to 40% of the purchase price before allowing a transfer. Depending on the developer, project and terms of the sale and purchase agreement, the required amount may be higher and can, for example, reach 50%. Some projects may also contain more restrictive resale conditions.
The 30% or 40% figure frequently referred to in the Dubai property market should therefore be understood as a developer or contractual requirement rather than a universal requirement imposed by Dubai law.
A purchaser considering a flip should consequently check the resale provisions of the particular sale and purchase agreement and obtain confirmation from the developer as to the amount that must be paid before the developer will approve the transfer.
What Are the Main Conditions for Flipping an Off-Plan Property in Dubai?
Although the requirements may differ between developments, an off-plan resale will generally involve several key conditions.
First, the original purchase should be properly registered in the Interim Property Register, commonly associated with the Oqood system. Dubai Law No. 13 of 2008 establishes the registration framework for off-plan transactions and permits registered off-plan units to be subsequently disposed of.
Second, the purchaser must review the sale and purchase agreement to determine whether the property can be transferred before completion and whether the agreement imposes a minimum payment or other resale condition.
Third, the purchaser will generally need to satisfy the developer’s requirements for the issuance of a no-objection certificate. Dubai Land Department’s procedures for registering a sale of a property, including a property under construction, require a developer’s electronic no-objection certificate in the relevant freehold areas.
Fourth, any required installments or other outstanding contractual amounts will normally need to be settled to the extent required by the developer before the transfer is approved.
Finally, the resale itself must be registered through the applicable Dubai Land Department procedure so that the interest in the property is legally transferred from the existing purchaser to the new purchaser. For an off-plan property, the relevant registration remains within the provisional registration framework until the project is completed and the final title registration process takes place.
Why the Sale and Purchase Agreement Matters
The sale and purchase agreement is particularly important in a property-flipping transaction because the law establishes the general legal framework, while the agreement often determines when the particular unit may actually be resold.
A properly drafted agreement may regulate matters such as the minimum amount of the purchase price that must be paid, whether installments must be fully up to date, whether the developer’s consent is required, any restrictions applicable during a particular stage of the development, and the administrative process for transferring the unit.
Therefore, two purchasers buying properties in different Dubai developments may face different resale requirements even though both properties are governed by the same general Dubai real estate legislation.
Dubai Law No. 8 of 2007 Concerning Escrow Accounts for Real Estate Development also forms part of the wider regulatory framework applicable to off-plan developments by regulating the collection and management of payments made by purchasers of off-plan units.
Conclusion
Property flipping is permitted within Dubai’s regulated real estate framework, including in relation to off-plan properties, provided that the transaction complies with the applicable registration requirements and the contractual arrangements governing the property.
Most importantly, there is no universal statutory rule requiring a project to reach a particular percentage of completion before the property can be flipped, nor does Dubai law prescribe a universal percentage of the purchase price that must first be paid.
In practice, developers frequently require approximately 30% to 40% of the property price to have been paid, although the threshold varies between developers and projects and may be higher. The applicable requirement must therefore be established by reviewing the sale and purchase agreement and the developer’s current resale and NOC requirements.
Investors considering the resale of an off-plan property should therefore review the contractual restrictions before committing to the transaction and ensure that the resale is properly registered with the Dubai Land Department. This is particularly important where an investment strategy depends on exiting the property before construction is completed.
For more information and legal consultation reach out to Al Safar and Partners Law Firm at +971 52 758 3267 - reception@alsafarpartners.com or visit https://www.alsafarpartners.com.
Written By: Dr. Sara Aghaei - Partner & Senior Legal Consultant at Al Safar and Partners Law Firm.