Investors in delayed and stalled projects are eager to get clarification from the authorities because a 'cancelled' status - as opposed to being ‘on-hold' - would give them the right to refunds.
"I heard that Rera is getting tough on developers and we should soon hear about the cancellations, this is good," says Omar, an investor who expects a final status call to be made on a stalled project he invested in.
The market is restless on this score as expressed by many attending a recent Dubai Property Society meeting. The forum discussed ‘an update on laws'. Interestingly, as proof of the insatiable interest in property-specific regulations, the meeting drew a full house. Attendees lamented a perceived inaction by the authorities to protect investors' rights.
Lisa Dale, partner at Al Tamimi & Company, highlighted the important impending regulations that could remedy that perception.
"The laws are looking at further protecting investors, hence, refunds or a replacement for defective properties are envisaged," Lisa states. "As well as penalties for delays to be imposed on developers, for example."
As far as putting theory into practice is concerned, Lisa recognises the authorities require more personnel to enforce the laws. "They are making efforts in this direction, the Real Estate Institute does in- and out-house training."
Meanwhile, the Executive Council's Decree No. 6 of 2010 doesn't only approve and seek to clarify the regulations outlined in Law No. 13 of 2008, but adds to it, such as making specific reference to developer negligence. The decree has been signed and at the time of writing was awaiting the formal publication in the Official Gazette.
Negligence
Points referring to negligence on the part of the developer include a delay in taking over the plot, obtaining the necessary approvals from the relevant authorities without any reason and delaying site preparation.
The decree does not mention any fines and doesn't address delays after the main construction has started. However, it does give the Land Department of Dubai or Rera the power to establish negligence on any other causes as it deems fit.
Whether the authorities will use this power to cancel projects remains to be seen. Rera and the Land Department did not respond to requests seeking clarification on how and when it will start cancelling projects.
Clean-up process
Al Tamimi & Company expects Rera to cancel ‘certain' projects and Michael Lunjevich, partner at Hadef & Partners, certainly hopes so. "There are bad projects that need to be cleaned out," insists Lunjevich. "This will help good projects get traction and investors can identify where the good projects are and where they should put their money."
He adds that there is a lot of suspicion at the moment over all projects, because the bad ones are still out there.
"As the old saying goes, if you clean out the bad apples the good ones stand a better chance of making the shop — if you leave the bad ones they might spoil the whole barrel," Lunjevich adds for good measure.
Decree No. 6 sets out the basis on which Rera can cancel projects. A technical report, including the progress monitoring reports, would reveal the causes. (They can be viewed under ‘Projects' on Rera's website.)
The causes for cancellation include a breach of the Escrow Law or the developer not initiating construction without justifiable cause after obtaining required approvals. Two of them refer to land on which the project is to be built.
One, it could be repossessed due to the sub-developer not owning up to his contractual obligations towards the master-developer or, two, the land may be affected by Dubai authorities' planning and re-planning projects.
Other reasons include the developer failing to commence the project due to gross negligence or declaring bankruptcy. Rera can also cancel it if upon investigation it finds the developer not serious about constructing the project, or any other causes it deems fit.
The developer can appeal the cancellation, but if not overturned it has to repay purchasers within 60 days of cancellation unless an extension is granted. If it fails to do that the matter would be referred to the competent judicial authorities.
Does this mean everyone will get refunded? Unlikely, says Lisa. "If we assume that there isn't enough money left in the escrow account to repay investors the developer would have to use his own money to refund. But maybe the money simply isn't there, ultimately some investors will lose and that's a hard fact."
Lunjevich concurs repayments are tricky. "This may test the insolvency laws in the UAE and we may see some live insolvencies processed now."
