Dubai: The direct effect of Lehman Brothers collapse was not dramatic in the UAE, but the bank’s collapse was a turning point in the emirate’s financial, business and legal structure.
The UAE had witnessed an unprecedented boom before 2008, and the world economic crisis came as a wake up call to the local market.
The economic fallout from Lehman Brothers collapse led to the UAE recognizing the need to upgrade and revised a number of laws and legislations addressing issues such as commercial regulations and arbitration, promoting efficiency, transparency, and investor confidence in the business sector.
These laws include, Commercial Law, Companies Law, Competition Law, Auditors Law, SMEs Law, Bankruptcy Law, Arbitration Law, Investment Law, Industry Law, Certificate of Origin Law, Consumer Protection Law and the Anti-Fraud Law.
“Our laws were quite old and needed to be revised to cope with the current economic situation and to allow us to stand up to the market challenges according to the fundamentals of justice,” said Sultan Al Mansouri, UAE Minister of Economy.
He said that the UAE economy passed through a challenging time but the market recovered and confidence returned with a stronger legal framework.
These laws and legislation were of critical important to the UAE, a country witnessing rapid growth, which was in need of a good solid legal and legislative infrastructure, said Abdul Razaq Al Fares, Senior Economist at the Dubai Economic Council.
“Going forward in the UAE legal infrastructure was very helpful to instill more confidence in the business community as well as provide better security to businesses.”
Remarkable changes took places on the local and federal legislations in the UAE, which was trying to eliminate the stigma of the Global Financial Crisis and encourage parties to sort out their financial problems in a more accessible way, he added.
Al Fares said continuous regulatory reforms are still need to ease the way business can be conducted in the UAE, as he believes the absence of many legal rights as a weakness in the current environment.
In particular, the Bankruptcy law is one of the most sought after laws that should be put in place. Al Fares said business owners have suffered a hard time during the global economic crisis, and the inability to face their financial problem or to restructure their debt according to the existing legislations at that time caused many to packed their bags and leave.
A bankruptcy law would reduce the number of absconding investors and enable them to manage and restructure their financial obligations without the fear of facing criminal offences, he added.
According to Dubai police records, in the first three months of 2009 a total of 11,440 bounced cheques was reported, which was the last time such figures were released up until 2013.
The central bank also pushed to impose stricter conditions on lending through major changes in the banking industry, including placing limits on the amount a bank could take from a person’s monthly paycheck, lending caps based on monthly income, and even considerin a severe increase in the down payments both expats and citizens would be required to have for a mortagage.
Rea Estate
The Real Estate sector in the UAE was the most affected sector from the global recession as realty prices dropped almost in half in 2009, forcing many companies, includng Dubai Holding, Global Investment Holding Company that manage high profil companies such as Dubai Jumeirah, Dubai Properties Group and Tecom Invesment,to restructure tens of billions of dollars in debt. As the rally of realty market stopped, countless projects were announced during the Dubai property boom but were postponed or cancelled — either partway through construction or before work had begun.
“While the drop in the real estate sector in Dubai was of major concern, government worked very hard to create a legal framework and upgrade the existing one to safeguard investors and better regulate the Dubai property market,” said Sultan Bin Mejrin, Director General of Dubai Land Department said.
The behaviour of the real estate market completely changed and a number of factors emerged in the growth of subdued mortgage, low off-plan sales and sudden absence of flippers and speculator.
Most of these factors emerged as Dubai Real Estate Regulatory Agency (RERA) imposed different regulations to ensure that off-plan sales are controlled as well as entitled developers to attach conditions to sales contracts in order to help prevent speculation and flipping.
Moreover, the land department developed several legislations for the Tayseer programme and the Tanmia initiative. The first was launched during the crisis when banks were reluctant to offer credit to developers allowing property companies to be registered with the department and have at least 60 per cent of a project complete to benefit from the programme. The second attempt to restructure stalled projects was so that construction work can resume.
“Despite all the changes made, the department is still working on a series of modification to tackle important legislations to help avoid the previous obstacles that the market suffered during the global recession,” Bin Mejrin added.
