The financial crisis has hit thousands of property buyers in Dubai, but with more robust laws in the pipeline the outlook could be brighter for future investors. The Dubai Land Department is drafting a series of regulations to better protect property buyers.
The laws are a result of the issues that arose from, or were intensified by, the fallout of the financial crisis. They mainly revolve around off-plan sales, the construction formula widely used during the six-year boom before the credit crisis bit, and include a refund or replacement for buyers where the developer delivers a defective property, and financial penalties for late delivery. The laws would also establish the grounds on which a purchaser can demand cancellation of the contract if, for instance, the developer refuses to link payment plans with construction milestones.
While investors have welcomed the move, they say the laws need to be carefully thought through and implemented. "In the past, many laws were done very hastily," said the multimillionaire German investor Lothar Hardt, who recently filed a case against Damac Properties at the Dubai International Financial Centre Courts for alleged breach of contract. "Some were just introduced because they felt they had to be, and weren't really thought through - yes, you have to protect the constructors, but you have to do it in such a way that doesn't cheat the investors, otherwise you will lose them."
Mr Hardt claims to have invested US$9.7 million (Dh35.6m) across five of Damac's developments in Dubai, three of which are yet to begin construction. He said the new laws needed to pave the way for a "vision for future investment", adding that developers also needed to co-operate more with their clients. "Not all investors are sharks in the ocean - investors and developers are now just hiding and trying to cheat one another," he said. "Nobody will invest in a country where they don't trust the law - they need to find a solution that both sides can live with."
According to Iqbal Saqib, who bought a villa on Nakheel's stalled Palm Jebel Ali project in 2006, developers should be made to officially scrap projects rather than just delay them indefinitely, which allows them to retain investors' money. "Most people know the projects that won't see the light of day, but officially they're not scrapped, they're just delayed forever," Mr Saqib said. Investors agree there should be a law penalising developers for late delivery, but say it needs more clarity.
"Most developers give one date in the contract, but they have an extension of 12 months," said Farah Agha, who has invested in property in Dubai, Abu Dhabi and Sharjah. "That does not really make sense; does the penalty apply after that?" Ms Agha also welcomed the move allowing customers to cancel their contract if a developer fails to link payment plans with construction progress. If a customer defaults on their payments, developers also have the right to cancel their contract and keep all money paid to date.
"That would be a positive change. Right now, for us to cancel we need to go to court," added Ms Agha. Under the proposed laws, developers will have to own the land before off-plan sales can begin, and will have to register all units in the Interim Real Estate Register with Dubai's Real Estate Regulatory Agency (RERA). They will also have to either have completed 20 per cent of the project, or have deposited 25 per cent of the project's cost, into an escrow account.
"I think what has upset most investors is the fact that developers, until now, would not take much of a risk in doing a project because they didn't put any money into it themselves," said Tommy Carlsson, who invested in a project by Schon Properties. "They were gambling with investors' money, and if they are unable to collect enough, they just stall the project. And the investors get stuck in the middle."
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