Dubai property laws mark a 'major step'
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Dubai property laws mark a 'major step'

Dubai property laws mark a 'major step'

Alexis Waller, Partner in legal firm Clyde & Co's real estate department, explains why the emirate's new property laws 13 and 14 mark a new point in the city's bid to increase regulation and transparency, and why investors should see the benefits.

    Over the course of the past 18 months Dubai has pushed through a number of new legislative initiatives covering the city's real estate sector.

    This has served to increase transparency in the emirate's property market and give direction to a sector that had been perceived as being unclear, and therefore higher risk, by outside investors.

    The initiatives that have been put through include the creation of the Real Estate Regulatory Authority (Rera), which has undertaken to cover all aspects of the property market, including the creation of a price index for different types of property across the emirate.

    More recently, in 2008, Laws 13 and 14 covering the registration of offplan property sale contracts and mortgages were also passed, legislating on pre-existing units, as was the Strata Law, which directly affects the owners of completed units.

    'We're still waiting for the exact regulations from the Strata Law, although it was released in April,' says Waller. 'We're also looking for the guidelines and the actual practice of the pre-registration and mortgage laws. Further laws on written guidelines aren't going to be issued, so you have to ask questions as they come up and then a ruling on that point is issued.'

    Legally-binding Land Court


    Effective from the beginning of October a specialized Land Court will come into being to rule on all property-related legal disputes, significantly cutting down the waiting time, sometimes up to five years, and expense previously associated with taking matters to the civil courts.

    'Rera had a complaints department that was able to mediate but it had no enforcement power. Rera would pass cases to the civil courts, and they would then clog up the judicial system. Now the new Land Court will take everything on, I think there are already 500 pending cases, and the decision will be legally binding.'

    This will also cover areas such as the ongoing disputes between investors and Saudi Arabian developer Sokook in the Ivory Tower development in Dubai's International Media Production Zone.

    In this case, where the developer has threatened to cancel existing contracts for breach of payment, despite the project not having broken ground, the cancellation of contracts will now have to be done through the Land Department. Sokook cannot now arbitrarily go ahead even if they disagree with Rera's ruling on the case.

    Registration and Mortgage regulations


    Laws 13 and 14 tie into each other in the protection of investors and the regulation of the market that they have put in place.

    Law 13 states that the contracts of all sales of off plan properties must now be registered with the Land Department, creating a fixed official database of all property transactions.

    'Law 14 (the mortgage law) links in with the pre-registration law and makes it easier for banks to secure proof of the land titles. Before this only certain developments could get finance by showing banks their internal register of buyers and giving MoUs that they wouldn't transfer contracts without a No Objection Certificate from the banks.

    'Banks didn't necessarily feel comfortable lending money for investors in other projects, but now the Land Department is the guarantor that these contracts have in fact been issued and who now holds them. In a way it's a bit of a moot point because, as property has risen on average by 20% noone was defaulting and it hasn't really come up, but it paves the way by ensuring the practices and standards are there. Both of these are quite a big step, and you can really see a fundamental change taking place.'

    Dubai rent cap laws


    Investors who have leased their premises for a period of time that they feel leaves them unable to maximize potential profits from their units due to the rent cap laws, could see further changes in regulations.

    Currently all disputes can be taken to the Rent Committee, which issues rulings on a case-by-case basis. However, there is no guarantee of whose favour the judgement will fall in, even if rents have not been raised for a matter of years, leaving a huge disparity between the rental income and current market values.

    'There has been talk, but this is unconfirmed, of there being a change to the rent cap law next year, so landlords could see what the current market price was and charge accordingly. This could maybe be by looking at Rera's price index, and tenants could then make an informed choice on whether they wanted to stay in place or not.

    'The Land Department might also come up with standard industry contracts for landlords to use; it could be something along the lines of three years for residential ones and five for commercial leases.

    'There are still loopholes however. It's hard to sell on properties that have tenants in situ, but if a landlord evicts the tenants by saying that they'll move in and then sell it on within the year then what happens? They're not allowed to lease it to someone else within that time frame, but are they allowed to sell? So the Rent Committee would still have to pass the rulings on situations like that.'

    See also:
    Dubai prices likely to see correction 'by 2010'
    Dubai homeowners face impact of increased charges

    Author
    AMEinfo Staff

    AMEinfo staff members report business news and views from across the Middle East and North Africa region, and analyse global events impacting the region today.

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