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Strategy 1: Buying an apartment in a building under construction to live in.
Step 4: Formalizing the purchase of an apartment in an under-construction building.
Formalizing the purchase of an apartment in an under-construction building in Ras Al Khaimah is a legal and financial process that involves various documents, payments, taxes, fees, and charges. It is also a risky and uncertain process that involves various factors, such as market conditions, legal issues, technical problems, or force majeure. Therefore, it is essential to follow the steps and the procedures carefully and cautiously, and to seek the guidance and the assistance of a reliable and reputable real estate agency. Real Estate Group provides some tips for buying an apartment in a residential complex under construction in Ras Al Khaimah in 2023:
1. Documents: The documents are the official and legal papers that prove and record the identity, the ownership, and the agreement of the buyer and the seller of the apartment. The documents are also the basis and the reference for the payment, the registration, and the handover of the apartment. The documents that the buyer and the seller need to provide and sign are:
1.1. Passport: The passport is the personal identification document that shows the name, the nationality, the date of birth, and the photograph of the buyer and the seller. The passport is required for the verification and the authentication of the buyer and the seller. The buyer and the seller need to provide a copy of their passport to the real estate agency and the developer.
1.2. Visa: The visa is the travel and residence permit that shows the type, the validity, and the status of the buyer and the seller in the UAE. The visa is required for the eligibility and the legality of the buyer and the seller. The buyer and the seller need to provide a copy of their visa to the real estate agency and the developer. The buyer also needs to obtain a residence visa from the UAE authorities if they want to live in the apartment or rent it out after the handover.
1.3. Bank account: The bank account is the financial account that shows the balance, the transactions, and the statements of the buyer and the seller. The bank account is required for the transfer and the receipt of the funds for the purchase of the apartment. The buyer and the seller need to provide a copy of their bank account to the real estate agency and the developer. The buyer also needs to open a bank account in the UAE if they want to pay for the apartment or receive the income from the apartment.
1.4. Reservation agreement: The reservation agreement is the preliminary and provisional contract that shows the intention and the commitment of the buyer and the seller to buy and sell the apartment. The reservation agreement includes the basic and essential information and terms of the purchase, such as the description, the price, and the payment plan of the apartment. The reservation agreement is required for the reservation and the confirmation of the apartment. The buyer and the seller need to sign the reservation agreement and pay a reservation fee, which is usually 5% of the value of the apartment, to the developer or the escrow account.
1.5. Sales agreement: The sales agreement is the final and binding contract that shows the agreement and the obligation of the buyer and the seller to buy and sell the apartment. The sales agreement includes the detailed and comprehensive information and terms of the purchase, such as the specifications, the facilities, the completion date, and the handover procedure of the apartment. The sales agreement is required for the formalization and the registration of the apartment. The buyer and the seller need to sign the sales agreement and pay the remaining amount, which is usually 95% of the value of the apartment, to the developer or the escrow account according to the payment plan.
1.6. Power of attorney: The power of attorney is the authorization and delegation document that shows the permission and the representation of the buyer and the seller by a third party, such as a real estate agent, a lawyer, or a relative. The power of attorney includes the scope and the duration of the authority and the responsibility of the third party for the purchase of the apartment. The power of attorney is required for the convenience and the security of the buyer and the seller. The buyer and the seller need to sign the power of attorney and pay a fee, which is usually AED 500 (USD 136), to the notary public or the court if they want to appoint a third party to act on their behalf for the purchase of the apartment.
1.7. Title deed: The title deed is the ownership and registration document that shows the transfer and the possession of the apartment from the seller to the buyer. The title deed includes the official and legal information and terms of the ownership, such as the name, the address, and the area of the apartment. The title deed is required for the handover and the occupancy of the apartment. The buyer and the seller need to sign the title deed and pay a registration fee, which is usually 4% of the value of the apartment, to the RAK RERA or the RAK Land Department after the completion and the inspection of the apartment.
2. Payment: The payment is the transfer and the receipt of the funds for the purchase of the apartment from the buyer to the seller. The payment is also the proof and the confirmation of the purchase of the apartment by the buyer and the seller. Payments to be made and received by the buyer and seller, according to Real Estate Group, include:
2.1. Reservation fee: The reservation fee is the initial and partial payment that the buyer makes to the seller to reserve and confirm the apartment. The reservation fee is usually 5% of the value of the apartment, and it is payable upon signing the reservation agreement. The reservation fee is non-refundable and non-transferable, unless the seller fails to deliver the apartment according to the terms of the agreement.
2.2. Remaining amount: The remaining amount is the final and full payment that the buyer makes to the seller to formalize and register the apartment. The remaining amount is usually 95% of the value of the apartment, and it is payable according to the payment plan that is agreed upon in the sales agreement. The payment plan may vary depending on the type and the value of the apartment, the stage and the duration of the construction, and the level and the quality of the service. The payment plan may consist of installments, milestones, or a lump sum, and it may be paid to the developer or the escrow account. The escrow account is a secure and regulated account that holds and releases the funds for the purchase of the apartment according to the terms and the conditions of the agreement. The escrow account is managed and monitored by the RAK RERA and the RAK Bank, and it protects the rights and the interests of the buyer and the seller.
2.3. Taxes, fees, and charges: The taxes, fees, and charges are the additional and compulsory payments that the buyer and the seller need to pay to the authorities and the service providers for the purchase of the apartment. The taxes, fees, and charges may vary depending on the type and the value of the apartment, the stage and the duration of the transaction, and the level and the quality of the service. Some of the common taxes, fees, and charges that the buyer and the seller need to pay are:
2.3.1. Registration fee: The registration fee is the payment that the buyer and the seller need to pay to the RAK RERA or the RAK Land Department for the registration and the issuance of the title deed of the apartment. The registration fee is usually 4% of the value of the apartment, and it is payable upon signing the title deed. The registration fee is split equally between the buyer and the seller, unless otherwise agreed upon in the sales agreement.
2.3.2. Service charge: The service charge is the payment that the buyer and the seller need to pay to the developer or the management company for the maintenance and the management of the project and the apartment. The service charge is usually AED 10 (USD 2.72) per square foot per year, and it is payable annually or quarterly. The service charge covers the costs of the cleaning, the security, the landscaping, the utilities, and the repairs of the common areas and the facilities of the project and the apartment.
2.3.4. Maintenance fee: The maintenance fee is the payment that the buyer and the seller need to pay to the developer or the contractor for the handover and the snagging of the apartment. The maintenance fee is usually AED 5,000 (USD 1,360), and it is payable upon completion and inspection of the apartment. The maintenance fee covers the costs of the finishing, the testing, the installing, and the fixing of the materials and the equipment of the apartment.
2.3.5. VAT: The VAT is the value-added tax that the buyer and the seller need to pay to the UAE Federal Tax Authority for the purchase and the sale of the apartment. The VAT is usually 5% of the value of the apartment, and it is payable upon signing the sales agreement. The VAT is applied to the first sale of the apartment, and it is exempted from the subsequent sales of the apartment.
3. Risks: The risks are the uncertainties and the dangers that may affect the purchase of the apartment by the buyer and the seller. The risks are also the factors and the events that may cause delays, cancellations, or defects in the construction and the delivery of the apartment. Therefore, it is important to be aware and prepared for the risks, and to take precautions and measures to avoid or minimize the risks. Common risks according to Real Estate Group that a buyer and seller may face include:
3.1. Market risk: The market risk is the risk that the value and the demand of the apartment may change due to the fluctuations and the trends of the real estate market in Ras Al Khaimah and the UAE. The market risk may affect the profitability and the liquidity of the apartment, as the buyer and the seller may lose or gain money from the purchase or the sale of the apartment. The market risk may be influenced by various factors, such as the supply and the competition of the properties, the economic and the political conditions of the country, the regulations and the policies of the authorities, and the preferences and the expectations of the customers. To avoid or minimize the market risk, the buyer and the seller should do some research and analysis of the real estate market and the project, and consult with a real estate agency and a financial advisor before buying or selling the apartment.
3.2. Legal risk: The legal risk is the risk that the purchase and the sale of the apartment may face some disputes or problems due to the laws and the regulations of the UAE and Ras Al Khaimah. The legal risk may affect the validity and the legality of the apartment, as the buyer and the seller may face some penalties or consequences from the authorities or the courts. The legal risk may be caused by various factors, such as the breach or the violation of the agreement, the fraud or the misrepresentation of the information, the dispute or the conflict of the ownership, and the change or the amendment of the laws and the regulations. To avoid or minimize the legal risk, the buyer and the seller should follow and comply with the laws and the regulations of the UAE and Ras Al Khaimah, and seek the guidance and the assistance of a real estate agency and a lawyer before buying or selling the apartment.
3.3. Technical risk: The technical risk is the risk that the construction and the delivery of the apartment may face some delays, cancellations, or defects due to the technical and the operational aspects of the project and the developer. The technical risk may affect the quality and the comfort of the apartment, as the buyer and the seller may receive an incomplete or a faulty apartment. The technical risk may be caused by various factors, such as the shortage or the failure of the materials and the equipment, the error or the mistake of the workmanship, the accident or the damage of the site, and the force majeure or the unforeseen event. To avoid or minimize the technical risk, the buyer and the seller should check and verify the quality and the standard of the project and the developer, and inspect and test the apartment before the handover.
3.4. Insurance: The insurance is the protection and the compensation that the buyer and the seller can avail in case of any risk or problem that may affect the purchase of the apartment. The insurance is also the payment and the service that the buyer and the seller need to pay to the insurance company or the provider for the coverage and the claim of the insurance. The insurance that the buyer and the seller can avail are:
3.4.1. Property insurance: The property insurance is the insurance that covers the physical and the material damage or loss of the apartment due to various risks, such as fire, flood, theft, vandalism, or earthquake. The property insurance is usually optional and voluntary, and it is payable annually or quarterly. The property insurance covers the costs of the repair or the replacement of the apartment, and it may also cover the costs of the alternative accommodation or the rental income of the apartment. The property insurance is usually 0.1% of the value of the apartment, and it is available from various insurance companies or providers in Ras Al Khaimah and the UAE.
Looking to buy property in Ras Al Khaimah? Write to us on WhatsApp and we will select the best options for you. Everybody buys from us!
3.4.2. Liability insurance: The liability insurance is the insurance that covers the legal and the financial liability or responsibility of the buyer and the seller for the injury or the damage of the third party, such as the visitors, the tenants, or the neighbors, due to the negligence or the fault of the buyer and the seller. The liability insurance is usually optional and voluntary, and it is payable annually or quarterly. The liability insurance covers the costs of the medical or the legal expenses of the third party, and it may also cover the costs of the fines or the penalties of the authorities. The liability insurance is usually 0.05% of the value of the apartment, and it is available from various insurance companies or providers in Ras Al Khaimah and the UAE.
3.4.3. Escrow insurance: The escrow insurance is the insurance that covers the financial and the contractual risk or problem of the buyer and the seller due to the failure or the fraud of the developer or the escrow account. The escrow insurance is usually mandatory and compulsory, and it is payable upon signing the sales agreement. The escrow insurance covers the refund or the compensation of the funds for the purchase of the apartment, and it may also cover the interest or the profit of the funds. The escrow insurance is usually 1% of the value of the apartment, and it is available from the RAK RERA and the RAK Bank.
