Due Diligence On Off-Plan Properties In Dubai

Last Updated on July 22, 2023 by Bram Vermolen

Due diligence on off-plan properties in Dubai is the process of conducting a thorough investigation and analysis of the legal, financial, technical and regulatory aspects of a property before buying it.

Off-plan properties are properties that are not yet completed or handed over to the buyers, but are sold by the developers or sellers based on the plans and designs of the project.

However, off-plan properties also involve certain risks and challenges, such as delays, cancellations, defects, disputes or frauds. Therefore, it is essential for buyers to perform due diligence on off-plan properties in Dubai to protect their interests and avoid any potential problems or losses.

What Is Property Due Diligence?

Property due diligence is the process of verifying and validating the information and documents related to a property before buying it. Property due diligence helps buyers to assess the quality, value, condition and suitability of a property for their needs and goals.

Property due diligence also helps buyers to identify and mitigate any risks or issues that may affect their property ownership or investment. Property due diligence involves various types of examinations, such as legal, financial, technical and regulatory examinations, depending on the nature and stage of the property.

Why Is A Real Estate Appraisal Important In Dubai?

A real estate appraisal is an important part of property due diligence in Dubai. A real estate appraisal is an objective and impartial assessment of the market value of a property based on its location, features, condition and comparable properties.

A real estate appraisal helps buyers to determine whether they are paying a fair price for a property or not. A real estate appraisal also helps buyers to secure financing or mortgage for their property purchase.

A real estate appraisal can be done by a licensed and qualified appraiser or surveyor who follows the standards and guidelines set by RERA Dubai, DLD and other authorities.

What Is The Reason For A Property Due Diligence?

The reason for a property due diligence is to ensure that buyers make informed and confident decisions when buying properties in Dubai. Some of the main reasons for a property due diligence are:

1. verify identity, reputation and track record of the developer or seller of the property

Buyers should check whether the developer or seller is registered with RERA Dubai, DLD and other authorities, whether they have delivered previous projects on time and with quality, whether they have any complaints or disputes against them, etc.

2. To confirm the legal status, title and ownership of the property

Buyers should check whether the property is registered with RERA Dubai, the Dubai Land Department and other authorities, whether it has a valid title deed or Oqood certificate, whether it has any mortgages or encumbrances on it, whether it has any legal issues or claims attached to it, etc.

3. To evaluate the financial viability and profitability of the property

Buyers should check whether the property price is in line with the market value and trends, whether they can afford the down payment and installments, whether they can obtain financing or mortgage for their property purchase, whether they can expect a good return on investment or rental yield from their property, etc.

What Do You Check During The Due Diligence Process In Dubai?

The due diligence process in Dubai involves various types of examinations that buyers should check before buying properties in Dubai. Some of the main types of examinations are:

1. Legal examination

A legal examination is an examination that verifies and validates the legal aspects of a property. A legal examination involves reviewing and analyzing various documents and information related to the property, such as:

• The title deed or Oqood certificate that proves the ownership and registration of the property.
• The sale and purchase agreement (SPA) that outlines the terms and conditions of the property transaction.
• The escrow account that safeguards the payments made by the buyers until the handover of the property.
• The joint ownership declaration (JOD) that defines the rights and responsibilities of the owners of common areas in a project.
• The no objection certificate (NOC) that grants permission from the developer or seller to transfer or sell the property.
• The completion certificate that confirms that the property has been completed according to the approved plans and specifications.

2. Financial And Tax Examination

A financial and tax examination is an examination that evaluates and assesses the financial and tax implications of a property. A financial and tax examination involves reviewing and analyzing various documents and information related to the property, such as:

• The property price and payment plan that determine the amount and schedule of the payments made by the buyers.
• The valuation report or appraisal report that estimates the market value of the property based on its location, features, condition and comparable properties.
• The mortgage or financing options that provide loans or credit facilities for the buyers to buy the property.
• The service charge or maintenance fee that covers the costs of operating and maintaining the common areas and facilities in a project.
• The value-added tax (VAT) or land tax that applies to certain types and values of properties in Dubai.
• The rental income or capital gain that results from renting or selling the property in Dubai.

3. Technical Examination

A technical examination is an examination that inspects and tests the physical and functional aspects of a property. A technical examination involves reviewing and analyzing various documents and information related to the property, such as:

• The floor plan or layout plan that shows the dimensions, areas, orientations and configurations of the property.
• The specification sheet or brochure that describes the materials, finishes, fittings and appliances used in the property.
• The snagging report or defect report that identifies and rectifies any faults, defects or damages in the property before or after the handover.
• The warranty or guarantee certificate that covers any repairs or replacements of defective items in the property for a certain period of time.
• The energy performance certificate (EPC) or green building certificate that measures and rates the energy efficiency and environmental impact of the property.

4. Regulatory Check

A regulatory check is a check that ensures compliance with various rules and regulations set by RERA Dubai, DLD and other authorities for buying properties in Dubai. A regulatory check involves reviewing and analyzing various documents and information related to the property, such as:

• The developer registration certificate or license that proves that the developer is authorized to develop and sell properties in Dubai.
• The project registration certificate or license that proves that the project is approved and registered with RERA Dubai, DLD and other authorities.
• The RERA index number or reference number that identifies and tracks the status of the project and the property.
• The RERA course certificate or license that proves that the agent or broker is qualified and certified to deal with properties in Dubai.
• The EJARI system or contract that registers and regulates rental contracts in Dubai.

5. Judicial Check

A judicial check is a check that verifies whether there are any legal disputes or claims involving the developer, seller, agent, broker or property in Dubai. A judicial check involves reviewing and analyzing various documents and information related to the property, such as:

• The court records or reports that provide information on any pending or resolved cases against the developer, seller, agent, broker or property in Dubai.
• The arbitration records or reports that provide information on any pending or resolved disputes between the developer, seller, agent, broker or property in Dubai.
• The mediation records or reports that provide information on any pending or resolved conflicts between the developer, seller, agent, broker or property in Dubai.

6. Conveyance

Conveyance is the process of transferring the ownership and title of a property from one party to another. Conveyance involves reviewing and analyzing various documents and information related to the property, such as:

• The transfer form or deed that confirms the transfer of ownership and title of the property from the seller to the buyer.
• The registration form or deed that registers the ownership and title of the property with RERA Dubai, DLD and other authorities.
• The transfer fee or registration fee that covers the costs of transferring and registering the ownership and title of the property.

What Does Doing Due Diligence For Properties Cost In Dubai?

Doing due diligence for properties in Dubai can cost different amounts depending on the type and stage of the property, the type and scope of the due diligence, and the parties involved in the due diligence. Some of the main costs for doing due diligence for properties in Dubai are:

Costs For Legal Examination

The costs for legal examination can vary depending on the complexity and duration of the legal examination, and the fees charged by the lawyer or consultant who conducts the legal examination. The costs for legal examination can range from AED 5,000 to AED 50,000 or more.

Costs For Financial And Tax Examination

The costs for financial and tax examination can vary depending on the value and size of the property, the number and frequency of the installments, the interest rate and fees charged by the bank or financial institution who provides the financing or mortgage, and the taxes applicable to the property. The costs for financial and tax examination can range from AED 10,000 to AED 100,000 or more.

Costs For Technical Examination

The costs for technical examination can vary depending on the condition and quality of the property, the number and extent of the defects or damages in the property, and the fees charged by the appraiser, surveyor or inspector who conducts the technical examination. The costs for technical examination can range from AED 2,000 to AED 20,000 or more.

What Is A Good Due Diligence Checklist for Real Estate Investors In Dubai?

A good due diligence checklist for real estate investors in Dubai is a list of items that investors should check and verify before buying properties in Dubai. A good due diligence checklist for real estate investors in Dubai should include the following items:

1. Zoning Verification: 

This is a check that confirms whether the property is located in a zone that allows the intended use and development of the property. Zoning verification can be done by checking the zoning map or plan issued by RERA Dubai, DLD or other authorities. 

2. Contracts:

These are documents that outline the terms and conditions of the property transaction between the parties involved. Contracts include SPAs, escrow agreements, JODs, NOCs, completion certificates, etc. Contracts should be reviewed and signed by all parties after ensuring that they are clear, accurate and complete. 

3. Taxation Review:

This is a review that evaluates and assesses the tax implications of buying properties in Dubai. Taxation review includes checking whether VAT, land tax or municipality tax applies to the property, how much tax is payable, when and how to pay tax.

4. Environmental Reporting:

This is a report that measures and rates the environmental impact and performance of a property. Environmental reporting includes checking whether an EPC or green building certificate has been issued for the property, what is the energy efficiency and carbon footprint of the property, whether there are any environmental issues or risks associated with the property.

5. Geotechnical Reporting:

This is a report that analyzes and tests the soil and ground conditions of a property. Geotechnical reporting includes checking whether a soil test or geotechnical report has been conducted for the property, what are the soil characteristics and properties of the property, whether there are any geotechnical issues or risks associated with the property.

6. Energy Expenses and Maintenance Reporting:

This is a report that estimates and compares the energy consumption and maintenance costs of a property. Energy expenses and maintenance reporting includes checking whether an energy audit or maintenance report has been conducted for the property, what are the energy sources and systems used in the property, how much energy and maintenance is required for the property, whether there are any energy-saving or maintenance tips or recommendations for the property.

7. Personal Research:

This is a research that involves visiting and inspecting the property personally and talking to the developer, seller, agent, broker or other parties involved in the property transaction. Personal research includes checking whether the property matches the description and expectations, whether the property has any defects or damages, whether the property has any amenities or facilities, whether the property has any advantages or disadvantages.

8. Market Evaluation:

This is an evaluation that compares and contrasts the property with other similar properties in the market. Market evaluation includes checking whether the property price is in line with the market value and trends, whether the property has a high demand and supply, whether the property has a good location and accessibility, whether the property has a good potential for capital appreciation or rental yield.

9. Land Title Confirmation:

This is a confirmation that verifies and validates the ownership and title of the property. Land title confirmation includes checking whether the title deed or Oqood certificate has been issued for the property, whether the title deed or Oqood certificate is clear and valid, whether the title deed or Oqood certificate has been registered with RERA Dubai, DLD and other authorities. 

10. Insurance Research:

This is a research that explores and evaluates the insurance options and coverage for the property. Insurance research includes checking whether an insurance policy or certificate has been issued for the property, what are the types and levels of insurance coverage for the property, how much insurance premium is payable for the property, when and how to claim insurance for the property.

11. Business Operations: 

This is a check that ensures compliance with various rules and regulations related to the business operations of a property. Business operations include checking whether an occupancy permit or license has been issued for the property, whether an EJARI system or contract has been registered for the property, whether a trade license or certificate has been obtained for the property, whether a service charge or maintenance fee has been paid for the property.

12. ADA Compliance:

This is a check that ensures compliance with various rules and regulations related to accessibility and disability of a property. Ada compliance includes checking whether an accessibility audit or report has been conducted for the property, what are the accessibility features and facilities in the property, whether there are any accessibility issues or risks associated with the property.

13. Tenancy Investigation:

This is an investigation that examines and evaluates the tenancy status and history of a property. Tenancy investigation includes checking whether a tenancy contract or agreement has been signed for the property, what are the terms and conditions of the tenancy contract or agreement, whether there are any tenants or subtenants in the property, whether there are any tenancy disputes or complaints against the property. 

14. Financial Confirmation:

This is a confirmation that verifies and validates the financial status and history of the property. Financial confirmation includes checking whether a valuation report or appraisal report has been issued for the property, what is the market value and price of the property, whether a mortgage or financing option has been obtained for the property, whether there are any outstanding payments or balances on the property.

15. Property Information: 

This is a check that provides and updates the information and details related to the property. Property information includes checking whether a floor plan or layout plan has been issued for the property, what are the dimensions, areas, orientations and configurations of the property, whether a specification sheet or brochure has been issued for the property, what are the materials, finishes, fittings and appliances used in the property.

16. Occupancy Certificate and Licenses:

This is a check that confirms that the property has been completed and handed over according to the approved plans and specifications. Occupancy certificate and licenses include checking whether a completion certificate or handover certificate has been issued for the property, whether an occupancy permit or license has been issued for the property, whether a warranty or guarantee certificate has been issued for the property.

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