New Law Considers Property Refunds in Dubai

New Dubai property law into consideration has bought a light for hope for real estate investors in Dubai, who would be refunded or would get a property replacement, incase they fall pray to the failing developers. Developers would be financially penalized if they fail to deliver their constructed project on time or to agreed specifications.

The law firm, Al Tamimi and Company, unveiled a newsletter with the proposed law and the conversation between Dubai Land Department’s senior legal advisor, Emad Eldin Farouq and the firm’s head of property practice, Lisa Dale.

According to the legal advisors, the failure of developers on handing over completed properties and buyers defaulting on payment would breed more legal disputes throughout the year.

“There are lessons to be learnt from the crisis and we are emerging with a new legal regime,” said Mr Farouq. “Loopholes in laws are being dealt with and things will become more organised in 2010.”

“2010 is still the year of fighting,” said Michael Lunjevich, the head of the property practice at Hadef and Partners. “It will be about consolidations, legal claims, liquidations and insolvencies. The market needs to clean itself out.”

The proposed law predominantly protects the interest of the buyers, where they are delivered defective property or have had late deliveries. This would lead to financial penalties to the buyer including a refund or replacement property. Also, if the developers refuse to link the construction mile stone with the payment plans, the buyer would be able to demand a cancellation of the contract.

“The investor protection law is being proposed to deal with some specific issues identified last year, where investors needed further assistance in dealing with errant developers,” Ms Dale said. “The granted land system is a tradition in the UAE, enabling nationals to have access to lands for the purpose of building their home or business premises,” Ms Dale said. “However, the system is quite limiting, as there are restrictions on transacting with such land. If you upgrade your title from granted to freehold, you can sell the property to other UAE or GCC nationals, or you can put it into a property fund or mortgage it. It becomes a much more flexible asset.”

The Dubai Land Department also plans to begin regulating property valuers and conveyancers by requiring them to obtain licences, and to create a law to oversee property brokers who handle trust accounts for property deals, Ms Dale said.

Property Investors Can Be Protected from Aftermath of Crisis- New Real Estate Laws

A new law is being worked upon by The Real Estate Regulatory Agency in Dubai which will give new rights to property investors. The law has not been revealed but according to a spokesperson, it is going to be comprehensive and seek to protect the investors.

‘Along with the Dubai Land Department we are studying a new law to protect the rights of real estate investors. Our ultimate goal is ensure justice and set up proper rules and regulations to regulate the relationship between developers and investors,’ the spokesman said. He also added that a draft will be ready to be sent to the Executive Office in order to get the approval by the first quarter of 2010.

The new law is expected to recollect the confidence among the investors of the Emirate followed by the exposure that the owners of developers Nakheel, Dubai World, has huge debts of $59 billion and is attempting to restructure some of it.

It is expected that the real estate industry will welcome more transparencies further.

According to Jason Manolopoulos, managing partner of boutique investment firm Dromeus Capital, the current crisis has raised concerns over corporate governance and transparency to a much higher level.

‘Investors should have been wary about the fundamentals of Nakheel. Everyone was fully aware of the overcapacity on Dubai real estate

I think 2009 will be remembered as the year when the idea that an implicit guarantee should be priced only slightly wider than an explicit guarantee was relegated to history,’ he explained.

‘Investors will have to differentiate, and the selling of companies on the basis of their connections and strategic importance will no longer work,’ he added.

‘It's clear there will be job cuts but it's too early to know the extent of it,’ Raj Madha, an analyst at regional investment bank EFG-Hermes said.

Rent Decline Extends in Dubai

The rental scenario is taking an extended break in Dubai with the unchanged commercial and residential rents.

According to a survey, people are postponing the move until the holidays and consequently the moving to other flats has slowed down. The enquiries related to tenancy are mainly focusing on the areas which are less congested and where the best possible prices can be obtained.

The landlords have continued to be flexible as well as negotiations of rental rates and payment terms due to the uninspiring property market. The average annual rental rates have become constant since September.

The survey found , “In November, a studio at the  Dubai Marina Marina Promenade, Emaar Six Towers, Downturn Burj Dubai, Palm Jumeirah, Sheikh Zayed Road and World Trade Center areas, ranged from Dh50,000 to Dh60,000. Rents for one-bedroom units were static at Dh85,000 to Dh120,000. A two-bedroom flat was priced at Dh120,000 to Dh160,000, while a three-bedroom unit was at Dh160,000 to Dh210,000.”

“In the mid-tier neighbourhoods of Bur Dubai, Al Barsha, the Greens, Jumeirah Beach Residence and Dubai Marina, a studio in November ranged from  Dh35,000 to Dh50,000, a one-bedroom flat ranged from Dh55,000 to Dh75,000, a two-bedroom flat at Dh70,000 to Dh100,000, and three-bedroom units from Dh90,000 to Dh120,000.”

“Average annual rents continued to be cheaper in International City, Discovery Gardens , Deira, Jumeirah Lakes Towers and some parts of Dubai Marina. A studio in these areas was priced at Dh26,000 to Dh40,000, and a one-bedroom unit at Dh38,000 to Dh65,000. A two-bedroom flat ranged from Dh60,000 to Dh85,000, while a three-bedroom unit went for Dh90,000 to Dh110,000.”

“However, at  Jumeirah Lake Towers, new supply brought down rents, with the lower end of the range cheaper by Dh5 at Dh55 per square foot. The higher end of the range in Bur Dubai, Tecom, Downtown Jebel Ali and Festival City, remained at Dh170 per square foot per annum. In Deira, Dubai Silicon Oasis and Dubai Sports City, office rents still ranged from Dh50 to Dh100 per square foot per annum in November.”

Revision of Rent Laws by Emir

The Rent Law in Middle East has been revised leading to the rise in complexity of eviction of the tenant from a rented property.

According to the new Rent Law No.(20) of 2009,issued by The Emir H H Sheikh Hamad bin Khalifa ,the revision does not give right of raising the rentals to the landlord. In addition to this, a landlord cannot ask his tenant to vacate the property unless the property is needed for his/her personal use or the use of any of his legal dependants. Moreover, the landlord in this case, should also give the notice to his tenant at least six months prior to the requirement.

The revisions were implemented after reviewing the draft law proposed by the Cabinet, considering the views of the Advisory Council and assessing the Constitution and related laws.

Tenant’s Perspective
•    The new law averts any increase or alteration made in tenancy contract for first two years.
•     Landlord must provide the property in sound quality.
•    Article 16 of this law puts the responsibility of property maintenance on landlord. But very next article states that landlord shall not make any change which will affect the tenant benefit in any way.
•    Tenants should be sure that only the contracts which are in written form and registered with RERA will be valid.

Landlord's Perspective:

•    Landlords will be constrained to decide rent at the time of contract for two years. Keeping this in mind they can decide a reasonable rent, as per the future economic changes
•    The landlords are free to receive rent value on agreed dates.
•    Any changes to property cannot be made by the tenants without landlord's consent
•    Tenants need to pay the entire taxes due to the Government.

Any complaint from a tenant will not be received by the Rent Dispute Settlement Committee (RDSC) set up by Law No. 4 of 2008, unless the tenant confirms a rent contract registered at RDSC office. However, tenants who seek a proof of landlord-tenant relationship for leases which were signed before February 15, 2008 can approach RDSC without contract.

Dubai Real Estate Buyers Cant Cancel Contracts Under Law No. 9

A legal expert suggested during the Dubai Society meeting held recently, that the Dubai property buyers cannot cancel their contracts under Law No. 9. However, the legal system has been somewhat sympathetic to the developers and given them the liberty to cancel contracts under this law. This decision was taken to discourage people from taking undue advantage of the down market. The only way now to cancel contracts, by a buyer, is by presenting an effective case in front of the court or approach the Dubai’s Real Estate Regulatory Authority.

Law No. 13, Article 11 was introduced in 2008 to standardize the procedure of cancelling the purchase of a real estate contract. However, over the time being there have been several debates on the law’s interpretation by the purchaser and the developer. Therefore, to normalize this situation, ruler of Dubai has introduced Law No. 9 to facilitate the procedure of termination of real estate contracts in Dubai. All contracts are legally bound by this new law even if the contract was entered before the law was passed, 30-April’09.

Procedure of Cancellation
If the purchaser fails to abide by the terms of the contract, the developer would have to inform the Land Department. The Land Department will then send a notice to the purchaser asking to fulfill contractual obligations within 30days. If the purchaser fails to do so within the stipulated time, the contract may, then, be cancelled.