Tatweer is to become the first Dubai developer to avail itself of a new registration system for off-plan sales in Dubai. The Land Department will now ensure that buyers' payments are held on escrow and only used for the project for which they are committed. It is to be hoped this voluntary system soon becomes compulsory for all developers and projects.
At present the money paid by off-plan buyers to developers in Dubai is paid into the developer's account and they are free to use it for any purposes that they see fit, until the cash is required for the project concerned or another project under construction.
This kind of pyramid selling of off-plan property, with the selling of the latest units helping to finance the construction of units sold earlier, has long worried Dubai real estate professionals. It is the kind of financing structure that can lead a real estate boom into trouble.
The new system from the Land Department tackles this problem head on with the registration of off-plan sales and the separation of new funds from the developer's general account. Observers said the move should help to eliminate smaller developers who use off-plan payments to pay for new project launches and to finance the construction of their previous projects.
A gentle deflation of this boom in secondary property developers is clearly to be preferred rather than a more serious implosion of these projects, and the Dubai authorities are wise to take this action.
Tatweer, part of the state-controlled giant Dubai Holding, is to be the first developer to voluntarily adopt the new system, which guarantees the rights of property owners during the construction phase, and should add to the confidence of potential buyers.
At present the unregulated sale of off-plan property places the burden of confidence solely in the hands of the individual developer. There is no assurance that the money is kept in a separate account or that the money is actually being spent on construction activity.
Therefore, once buyers can be sure that their money is safe during the construction period thanks to the Land Department's system, the logical conclusion is that confidence in the Dubai property market will be raised.
However, the new system does also raise a red flag and show a willingness to correct what now appears in retrospect an error. And it is to be hoped that this is not a case of closing the door after the horse has bolted.
Only time will tell. The Dubai property boom was built on the trust of the original purchasers in the developers of Dubai, and that trust has been largely rewarded in the delivery of highly rentable properties and strong capital gains. Let us hope this pattern will continue to be repeated into the future.