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We are excited to share the latest edition of the Law Update, beautifully and appropriately titled “Sustainable Horizons: The Saudi Arabian Vision.” Giving special honor to the Kingdom’s 2030 vision, this update focuses on a collection of both informative and inspiring articles.
For those in construction, you can learn about how the tendering environment impacts risk-pricing for contractors, the updates on the legal framework of the construction industry and how contractors can protect themselves against financial difficulties.
There is good news too from the kingdom’s banking sector, from which the practice of “Open Banking” is being pushed for! But what is open banking? We’re answering that too.
Also . . . Are there any women trail blazers in Saudi Arabia you can name? We’ll help you with that. We cover how the Middle East has been making strides in empowering women in the entrepreneurial space,most notably in STEM fields.Read the full edition
Law No. 27 of 2017 concerning the Promulgation of the Real Estate Sector Regulation Law (New Law) was issued in the Official Gazette on 01 September 2017, with Chapter one coming into effect on 01 September 2017 and the remaining sections of the New Law coming into effect on 01 March 2018. The New Law contains 109 Articles and is a comprehensive piece of legislation which covers a wide range of issues relating to the Real Estate Sector. We set out below the main areas:
Establishment of a Real Estate Regulatory Authority
Chapter one of the New Law deals with the establishment of a Real Estate Regulatory Agency (RERA) which will regulate the Real Estate sector in Bahrain. The board of directors of RERA (Board) have recently been announced with the CEO being Sheikh Mohammed bin Khalifa bin Abdulla Al Khalifa.
The Board have a number of tasks ahead of them, including the implementation of a national plan concerning the regulation of the real estate sector and issuing regulations for the operation of the New Law.
Off Plan Development in Bahrain
One of the most eagerly awaited aspects of the New Law was the regulation of off plan developments. The New Law has replaced Law No. 28 of 2014 concerning Property Development which previously governed all off plan developments, however, the New Law contains a number of similar requirements.
Developers who sell off plan properties will need to obtain a “Developer’s Licence” prior to carrying out any development activities – a resolution from the Cabinet of Ministers will determine what is a “property development” and the Board will issue a resolution determining the requirements for obtaining, renewing and amending a “Developer’s Licence”.
Once a developer has obtained a “Developer’s Licence” its details shall be recorded in a “Developer’s Register” which shall be kept by RERA.
As well as obtaining a “Developer’s Licence”, the New Law requires each development or project to obtain a “Development Licence”, Certain small off plan projects will be exempt from the requirement to obtain a “Development Licence” and further details are awaited. RERA will keep a “Development Register” which shall include the following information for each registered development:
When obtaining a “Development Licence”, a developer must submit to RERA amongst other items the following:
The New Law places an obligation on developers to proceed with the development and RERA has the ability to withdraw a “Development Licence” should the development not proceed as required. The exact criteria will be determined by a resolution of the Board.
Similar to previous legislation and other GCC markets a Developer will be required to create an Escrow Account with a registered Escrow Agent. An Escrow Account will be used to deposit the sums obtained from the sale of units in a development and will include any finance obtained for the development. Further details of the amount of the initial deposit and the rules relating to the Escrow Account will be issued by way of a resolution by the Board in coordination with the Central Bank of Bahrain.
The Escrow Account shall be exclusively designated for the development and any sums deposited within the Escrow Account shall be “ring fenced” and will not be able to be seized or utilised by any creditor of the developer. A certain percentage of the structural value of the development shall be required to be kept in the Escrow Account for 12 months following the sale of the last unit within the development. Such sum shall be utilised to remedy any defects within the development.
An important requirement of the New Law prevents any marketing of the off plan development whether locally or internationally without the development being registered at the Survey and Land Registration Bureau (SLRB). Such registration will include the “Development Licence”, the amount of the units within the development, the sale contracts and any other information as determined by the President of the SLRB in coordination RERA.
Various other regulations are awaited from the Board and some of which will deal with the following:
Brokerage, Valuers and Property Management
Sections 3, 4 and 5 of the New Law cover brokers, valuers and property management respectively, with each profession being required to obtain a licence from RERA to practice. Resolutions setting out further requirements will be issued by the Board, however one important restriction of the New Law is that Valuation and Brokerage activities cannot be undertaken by the same business.
Joint Ownership and Home Owners Associations
The main changes from the previous law is that a Home Owners Association (HOA) is required to be established on the sale of one unit (rather than 4) and shall be an incorporated entity. Also, a HOA will now be capable of being registered at the SLRB and will form part of the title deed of any common property which is jointly owned.
Registration of Rights
The New Law requires all property “real” rights to be registered and these will include long term leases, rights of Musataha rights of lease to own and mortgages.
Non-compliance with the New Law carries severe penalties which range from up to 2 years imprisonment and a fine of up to BHD50, 000.
The New Law with the coming resolutions will provide comprehension legislation dealing with the Real Estate Sector in Bahrain. The establishment of RERA as the regulator creates the necessary government authority to implement the New Law and regulations with such regulation having the potential to provide a level playing field for stakeholders and give greater confidence in the market to investors.
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