Investors will now have to pay 20 to 30 per cent of the property value from the existing five to 10 per cent before they can re-sell "off-plan" properties, developers told
Emirates Business.
"The first transfer and sale of off-plan properties is allowed only after 30 per cent of the total property value has been paid. All dues are to be settled on time including a penalty interest of up to two per cent per month on overdue payments prior to any transfer," a spokesperson for Emaar Properties said.
"The idea of stipulating 30 per cent of the total value of the property to be paid by a buyer before it can change hands ensures there are more genuine investors and end-users buying Emaar's properties. Emaar's priority is to cater to end-users and investors who wish to hold the property for own use or for stable rental income. The transfer policies put in place by Emaar does assist in having more end-users as customers," he said.
According to Union Properties, the company's off-plan unit sales generally follow a payment plan that involves collecting 65 per cent of the project value during construction on their developments in Dubai International Financial Centre with the rest to be collected upon handover of units and 40 per cent of the project value to be collected during construction for all their developments that are outside DIFC.
"Such a payment structure has made our products affordable. This structure also supports our confidence of timely delivery and gives us enough strength of financial position since a good portion of the project value gets due for payment from buyers once handover of the units begin," said Zaid S Ghoul, Chief Financial Officer, Union Properties.
The company is taking measures to control the effect of speculation in the market by screening customers' profile and not allowing buyers to re-sell before they pay at least 20 per cent of the property value.
"Furthermore, we have notified buyers that the transfer fee to process transfers [re-sale activities] on certain projects of Union Properties would be as high as 10 per cent of the project value. That helped cut the speculators from buying properties in these projects for the purpose of selling them after a short period of time."
The mechanism of transfer fees though will change with the new laws and regulations coming in effect to deal with this area, said Ghoul.
Union Properties also monitors payments from buyers closely from details that are stated by the buyers from the forms they sign with the buyers. "This method of tracking and penalising a buyer is another way by which we manage the effect of speculation activity on our properties. We collect post-dated cheques to cover all payments required before handover and we penalise those whose cheques are bounced by either imposing a penalty or through a cancellation of their units if they fail to rectify the issue within an agreed period.
"In case of a cancellation, we refund the money paid deducting only the cancellation fee," said Ghoul.
Meanwhile, some Dubai-based sub-developers say they are not encouraging speculators although the market cannot completely do away with them.
"Since its inception in 2003, ETA Star Properties as a policy have decided not to enter into any speculative purchase of land. All land acquired have been from master developers such as Nakheel, Dubai Properties and Emaar only with the intention of development. Either properties have been delivered or are in the process of being developed at lands owned by ETA Star," said Mohammed Ali, General Manager, ETA Star Properties. "We have already delivered Belvedere, Palladium, Star Boutique, Star Metro Deira and Star Metro Barsha. This year, we will be delivering Liberty House in DIFC, Gold Crest Views 2 and Gold Crest Executive in Jumeirah Lake Towers," he said.
"Our buyer profile is largely investors with a long-term interest. Most of our investors are with us right until the completion of the project. Previously we did sell our properties to investors on floor basis but now we have cut that down to restrict our buyers from purchasing a maximum of three individual property units.
"Also the investor or buyer should have paid a minimum of 25 per cent of the property value before they can transfer ownership. This also means that the next investor who buys into this property will have to have liquidity to pay at least 30 to 35 per cent of the property value including paying up the premiums to the seller, transfer charges etc," said Ali.
According to Omniyat Properties, they do not see a lot of short-term investors [those who sell their units before completion of the project] since their developments are more technology driven.
"Investors should have paid up to 25 per cent of the value of the property before they can make a re-sale of that unit," said Mehdi Amjad, Chief Executive, Omniyat Properties.
"According to our sales and purchase agreements, we do not allow investors to flip their properties very quickly. The investor should have paid all advance payment and first installment before he can resell on the product," Amjad said.
Developers take strict measures
Master developers are taking stringent measures to stop reselling of lands by ensuring that plot is sold only to 'serious' developers.
Nakheel, the real estate arm of Dubai World, said the current policy does not allow transfer of land-ownership prior to completion of the project development.
"Plots are sold with an obligation to the sub-developer to develop within a specified period (completion, is usually stipulated, within 36 months)," said David Nicholson, Legal Counsel for Nakheel. The obligation to build is not new and the period of construction may vary according to specific projects, but generally as a rule we stipulate construction of properties to be completed between 24 to 36 months," he said.
"In June this year, Nakheel introduced a new and radical sealed bid process for land sales at Waterfront's Canal District. The measure, a first in the real estate market in Dubai, was approved by Rera, and ensured that only investors, who met a strict pre-qualification process, were able to bid. The sealed bid process saw 23 plots being sold using this method.
"The introduction of well-regulated land sales measures in our sealed bid process, holds a positive impact for all investors in a certain phase or area of a development. As buyers must develop rather than sell on the land, this gives investors confidence that neighbouring plots will be developed," said Nicholson.
Further Nakheel is taking steps to ensure the buying process on its land and properties is as transparent as it can get.
"We have already implemented a number of innovative sales methods to the market for this purpose. The recent success of the Jumeirah Islands auction – the company's first ever auction for private residences – represented a significant step towards ensuring the sales process is more accountable and measurable. We have introduced the restriction of re-sell for some of our off-plan developments; for example, residential units purchased at Trump International Hotel & Tower cannot be sold within the first year of purchase," he said.
According to Emaar Properties, development and construction time lines are specified for building on land plots, and the plots cannot be transferred from one sub-developer to another before the construction is completed.
"With respect to land sales we do not sell the land with the intention of re-selling. We only sell land to sub-developers who wish to develop themselves," Union Properties Chief Financial Officer Zaid S Ghoul. "We screen those sub-developers and accept their concept design of what they plan to build before we commit to selling them the land plots. We further monitor their activity and apply penalties on them if they are late in development. We also ask those sub-developers to provide us with a bank guarantee if they plan to sell off-plan," said Ghoul.
Steps to reform market The proposed move to ban speculations in the off-plan realty market is a vital and positive step, which will contribute to the stability of Dubai real estate market and boost its growth, according to a Kuwait-based developer.
Marzooq Al Rashdan, Vice-Chairman and Managing Director of Abyaar, said: "The new regulations list a number of provisions that need to be met by property buyers who plan to re-sell their properties. Being one of the leading boutique property developers, we believe speculative buying may harm the real estate market, by pushing prices up to unrealistic highs. This has the ability to lead to a 'real estate recession', therefore, laws that regulate the property trading process are in the interest of all the parties involved in this sector.
"We believe the main purpose of this decision is to regulate all processes related to selling, buying and investing in Dubai properties, as well as attempt to control and limit increases in property prices."
Real estate investments should be long-term. Both the Dubai Land and Property Department, and Rera have taken vital steps aimed at reforming the market. One of these is the trust accounts law, which requires all developers to open trust accounts in which the amounts received from off-plan units buyers are deposited, and not used until the project is finalised," added Al Rashdan.
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