Under a comprehensive overhaul of the regulatory scenario for Dubai’s property sector, sweeping changes are expected to be in place by 2015. These could bring about improved clarity on many aspects of real estate transaction and with a major focus on investor protection.
The fate of cancelled projects during the financial crisis has been a major source of discontent among investors. Dubai’s latest decree addresses this issue by setting up a committee to resolve disputes in projects cancelled by the Real Estate Regulatory Authority (Rera). Its objective would be to liquidate scores of cancelled property projects and repay investors.
However, projects that have been delayed by developers and not formally cancelled are beyond the scope of this committee. This might leave a big chunk of investors still searching for answers. Developers of these projects can play a role by maintaining regular communication with investors through status updates.
The Real Estate Investor Protection Law has been drafted to protect future investors from delayed or fraudulent property investments. The draft allows investors to get a full refund if the developer fails to complete or handover a property within a certain timeframe or deliberately defrauds an investor. The Law will also apply to alterations in a property’s specifications without obtaining the requisite permission.
Investors can also claim compensation for breach of any warranty or undertaking contained in the contract for sale by the seller and the broker, and misrepresentation by the developer, investor or broker.
Contractual agreements
Experts believe contractual agreements should also be regulated as a part of this overhaul. A standard template for a sales and purchase agreement can be introduced and all parties must be mandated to use these for legal purposes. The new template should include the details of developers, investors and the property, as well as penalties on both sides for breaches of their obligations. It must also attach clear restrictions on the re-selling mechanism.
Although the law ensures maximum rights for investors, the onus of protecting themselves ultimately lies on investors. They must read and understand a contract completely — in the context of their personal, financial and legal situation — before signing it. They must ensure that contracts do not include clauses that make implementation of the above rights void.
After getting their say in recent months, owners’ associations are being further strengthened. Sources suggest that we may see further activity relating to the JOP Law (jointly owned property) in the near future.
The JOP/Strata Law provides a legal framework that enables a building with multiple ownership to be subdivided into units and common areas and for owners to register their unit’s ownership with the respective land registry departments. To date, owners have had a relatively passive involvement in the management of their buildings and developers have normally sought to retain the management of them under the sale and purchase agreement for an extended term.
However, proposed regulations are set to change this by providing a firmer legal status for owner associations and enabling them to operate separate entities.
Speculators have also been targeted by the introduction of binding controls over the re-sale of properties, including thresholds for premiums and the percentage of completion on a project before homes can be sold. According to a top official, the Dubai Land Department is also working on two legislations, namely the Tayseer programme and the Tanmia initiative.
The former encourages property development finance, while the second restructures stalled projects to enable construction work to resume. By controlling these two aspects, regulators will be able to closely monitor the liquidity and supply situation in the sector.
Meanwhile, the IMF has urged regulators to improve the legislation around mortgage lending to balance their loan portfolio across all sectors and reduce vulnerability to industry shocks. It noted that the banking system has sufficient liquidity. However, non-performing loans, a key risk indicator, remain high.
Regulators and analysts are of the view that new regulations are certainly good news for stability. All industry participants will stand to benefit in a regulatory environment where investor rights are protected, which will enhance the investment profile of the emirate, thus attracting higher investment.
— The writer is the head of valuations and research at Chesterton International.