The announcement of the five per cent rent cap for 2008 should also be understood in this context. Dubai chose not to slam on the breaks with a rent freeze but has taken a gradual approach.
The first rent cap was set at 15 per cent in 2006, that came down to seven per cent in 2007 and for 2008 the maximum increase for an existing tenant will be five per cent, and nothing at all for anybody who signed a contract last year.
This gradual approach to managing the real estate boom is a classic example of Dubai’s pragmatic and sensible approach to managing economic development: If you hit a winner you run with it for a while, but then you have to act to stop things getting out of control.
Step forward the Real Estate Regulatory Authority which now licenses over 400 developers active in the Dubai market, and which is responsible for imposing the escrow account law.
This means that developers have to deposit funds for off-plan apartment projects into a separate account, unless they are given special dispensation by the RERA. In practice the interests of both parties is protected: the buyer knows that funds are correctly held on deposit; and the developer is protected from making poor investments with the money.
The RERA is working hand-in-hand with the Dubai Land Department, the real estate title registry. The latter is making progress in registering freehold titles of property sold to date in Dubai, and has just warned property owners that registrations after the middle of 2008 will be based on a percentage of the market and not original selling price.
Meanwhile, upcoming legislation in 2008 on mortgages and multiple occupancy of buildings, will further clarify the rights and obligations of parties.
For the development of a vibrant modern mortgage market in Dubai it is vital that the rights of the banks in the case of loan default and the rights of the borrower are protected by legislation sourced from the best global practice. Similarly, the position of apartment owners within buildings with respect to common parts needs to be clarified by a strata-title law.
Dubai has certainly come along way from May 2002 when foreigners were promised the right to freehold title in Dubai, albeit without formal legislation at first. That followed and the subsequent development of the market is ongoing, and proceeding in an orderly and well managed fashion.
By the end of 2008 Dubai real estate will be in a legal position remarkably similar to most global markets, and its electronic land registry is actually a long way ahead of many rivals. This just has to be good for the market and prices.