Emirates City Forum

Dubai to reveal new property laws

Bradley Hope

* Last Updated: June 04. 2009 7:49PM UAE / June 4. 2009 3:49PM GMT

Dubai property legislation is undergoing a major overhaul. Amy Leang / The National

DUBAI // Dubai is expected to release a new set of regulations governing the property industry within weeks, in a move to increase confidence in a sector hit by falling prices and a growing number of disputes between investors and developers.

The Government recently published Law 9 of 2009, an amendment that introduced a sliding scale of refunds for buyers who defaulted on their purchase plans for property in off-plan developments.

But the bigger changes are likely to come with the introduction of regulations this summer, possibly as soon as next month, which provide details on how Law 9 and other property laws are to be interpreted and administered going forward.

Law 9 provided the clearest guidelines yet about the issue of defaults and significantly increased the power of the Real Estate Regulatory Agency (RERA) and Dubai Land Department by making them the final judges on every default, and giving RERA the authority to cancel projects.

“The whole purpose is to put the purchaser in a situation of security,” said Mohammed Kamal, the head of the property practice at Lovells. “Currently there are some very bad situations where purchasers have no certainty on what is going to happen.”

Emad Farouq, a senior legal counsel at the Dubai Land Department, said recently that the new regulations would mostly focus on the procedure for terminating a purchase agreement, the payment of damages, and the rights and obligations of a developer when reselling a unit after a contract was terminated.

One problem with the law by itself is that many cases fall outside of the situations described in its wording. One example is a purchaser who has paid 80 per cent on a home, but defaults on the remaining amount after completion of the unit. Law 9 says in this case, the buyer loses all their money, which would be clearly “unfair”, said Michael Lunjevich, the head of the property practice at Hadef and Partners.

In this case, the regulations should spell out a situation where the buyer could still receive the unit and owe the developer the remaining 20 per cent, Mr Lunjevich said.

“The broader regulations being discussed will take into account the totality of the property laws and the overall purposes of the changes,” he said.

The regulations are expected to deal with how RERA will assess a project’s viability before making a decision on how to cancel it. For instance, RERA might work with third-party experts to determine the viability of projects, Mr Farouq said.

One of the most pressing issues, according to lawyers, is what happens in cases where RERA cancels a project but there is no money left in the escrow account. According to the law, the investors are supposed to receive a complete refund.

“Investors are calling me every week with situations like this,” said Ludmila Yamalova, a lawyer with Al Sayyah Legal Consultants and Advocates in Dubai. “There needs to be some kind of mechanism besides just going to court.”

Lawyers said possibilities would include a RERA-sanctioned auction of assets such as land or, if the project is further along in development, the sale of an unfinished building to a distressed asset fund.

But not all cases will be resolved to investors’ satisfaction. The economy was entering a painful cycle that would see the end of some developers and many investors losing money, said Mr Lunjevich.

“People got caught up in the euphoria of the never-ending boom,” he said. “Some people jumped on the boom wagon too late and it is devastating their financial position ... we need to get down to the cold, hard reality of ambitious projects not being built and people losing a lot of money.

“In 12 to 18 months, Dubai will get rid of the bad investors and the bad projects.”

bhope@thenational.ae