Dubai Property Sector Reforms – Investor Protection takes one step closer to reality

Dubai and the rest of the Emirates are known for some of the most spectacular property developments in the region. Renowned the world over, investors have been flocking to this true oasis in the desert for longer than a decade now. While the picture was all too rosy at the beginning, the global economic downturn led to pressure mounting on developers. As funding pipelines dried up, the facade of prosperity began to crack. Reports began flooding in of investors being left high and dry, as master developers pushed back and in some cases, even abandoned construction plans.

As the economy went into crisis mode, the claims of investors having burnt their fingers only began to rise. Developers too were in no hurry to return the funds that had already been collected. They tried every trick in the book to hold on to the investors funds, even as they struggled to deliver the promised apartments and villas. As a result, the property sector in Dubai lost its sheen amongst investors, who began to exit the market in droves. This only served to further worsen the crisis.

The government earlier in the year had cautioned developers against such malpractices. However, given the market sentiment, they have now released the draft of a law that seeks to protect the rights of the investors against unscrupulous developers. Interpreting the sections of the proposed draft reveals that investors would soon be able to seek full refund of their money, should the developer be held guilty of malpractices.

Delayed by agreement:

The cancellation or termination process may be initiated under the circumstances wherein the developer fails to hand over the unit to the investor, either due to incomplete construction or a delay in handover of possession. The cut-off date for possession handover would be the one mentioned in the contract signed at the beginning, between the developer and the investor. This clause grants protection to investors against builders who include delay tactics in the sale agreement itself.

Variance in Build Specification:          
Some builders are known to use substandard materials or materials that are different in specification from those mentioned in the contract between the developer and the investor. At times, they even under-deliver apartments and villas, with the actual space being over one-third less than that mentioned in the contract. Under the draft of the proposed law, investors will now be able to demand a full refund of their money, should such an incident were to occur.

Common Areas, Common Problems:    
Each sale contract signed between a developer and investor includes in addition to the unit being purchased, the specifications of the common area amenities and features that purchasers are entitled to, when they make an investment. Some builders promise the moon. But fail miserably come delivery time. The new law (proposed)  now makes it increasingly difficult for unscrupulous developers to get away with such malpractices.   

Arbitrary Changes:      
Arbitrary changes in the specifications of the units such that they fall foul of the prevailing rules and regulations or are not to standard fall under this category. Developers who indulge in such behaviour would now have to be responsible for the full repayment of investor dues, should they wish to invoke their rights.

Besides the above circumstances for full refunds, the draft law also seeks to protect investors from unnecessary delays by offering them compensation. Such action is liable to be taken under circumstances such as:

Warranty Breach:       
Where-in the developer or the broker has deviated from any terms and conditions mentioned in the contract signed between the former and the investor

           

Misrepresentations:
The terms and conditions mentioned in the contract are misrepresented to the investor with the intention of getting him/her to part with their funds in a fraudulent manner

Out-of-Spec:
If the investor notices that the unit being handed over not as per specifications mentioned in the agreement signed with the Developer. Such discrepancies have to be ratified by an independent, third-party expert

Delays:
Investors are due to be compensated by the developer for all delays in handover that are greater than a month and lesser than a year

This proposed draft, should it be passed as law, would help go a long way in protecting the interests of the investors. It should also serve to strengthen the realty industry through the weeding out of weaker players who seek to undermine efforts. It remains to be seen, if the proposed improvements actually do make the transition to become the investor protection law that it intends to be.

The Chilling battle between Master Developers and Tenants in Dubai

Dubai, one of the most exciting places on the planet is well loved by its expats. Wooed over the years by some of the most spectacular residences and infrastructure on the planet, expats have flocked to Dubai like mice to cheese. While Dubai does appear to be all fun and games, which to a certain extent, it is, there still are a few things that prove to be a gentle reminder that every coin has a second side. 

If there were a single example to expose the difficulties in Dubai, it’d have to be the realty sector. Master developers, responsible for the design and construction of the residential and commercial units in the Emirate have long been at loggerheads with investors and tenants over a host of issues. As investors began to hold back the payment for services rendered, certain developers responded by cutting off access to community areas such as the beach, fitness centres, community parks and other such common areas. Things went on to degenerate right to a flash point and the developers found themselves in a tough spot. On one hand, they were facing the twin effects of a downturn in the economy and the drying up of revenue streams. At the other end, they found their investors to have rented out their properties to tenants. Now, the problem in the case of the latter scenario was rather peculiar.

The tenants claimed that they had paid all their dues to the property owners, who were the original investors for developers. Thus, for any action related to the payment of dues to be taken, the developers would have to contact the owners and stop targeting the tenants. Following the intervention of the regulatory authority, the matter seemed to have resolved in a satisfactory manner. But there was that underlying feeling of discontent running through both the camps.

One of the most significant cost factors for the realty sector is utilities. Particular among these are the district cooling facilities that are a must for surviving in one of the hottest parts of the world. Citing rising input costs related to generation, transmission and distribution, a leading master developer proposed a rate hike in chiller charges. The announcement mentioned that given the rising input costs, the master developer would no longer be in a position to support the subsidized rates that it had been extending to its residents. It also sought references to the rates being charged across other comparable properties when seeking to justify the hike.

Given the fact that an air-conditioned environment is critical to survival in Dubai; some residents decided to do things differently. Faced with a 200% hike in district cooling charges, some villa owners at the luxurious Jumeirah Islands community decided to install split air-conditioning systems at their respective properties. They were pleasantly surprised to see a noticeable drop in the bills and many declared that they would not be reverting to the central cooling systems in the future.

However, the terms and conditions of the contract between owners and the master developers could prove to be the proverbial fly-in-the-ointment. The Real Estate and Regulatory Agency (RERA) has already announced that they are working with the concerned parties to find an amicable solution to this problem. They also stated however, that rising input costs are bound to put pressure and it remains to be seen as to how much of an impact they would end up having.

The one thing that is being overlooked in this battle has been the humble contract. Industry experts have been crying themselves hoarse to get people to pay close attention to the fine-print. Else, the case may so happen that one’s dream villa may prove to be quite expensive as the living costs increase, as has happened in the case of villa owners at the prestigious Jumeirah Islands community.