Regulation of off-plan property sales in Dubai is critical

Off-plan property sales have to be regulated correctly, says a UAE-based law firm.

“Buying off-plan property is still a risky business. Many investors cannot wait to get back to the good old days of 2002-2008 and another upward cycle. However, if the past has taught us anything, it is that price rises on the back of multiple trades of paper (i.e. off-plan secondary market sales) can lead to a cliff edge if the projects are not delivered,” Hadef & Partners said in its 2012 report on the legal state of the Dubai real estate market.

“Therefore, whilst investors should be cautious particularly in relation to off-plan property… It remains to be seen whether the laws and more importantly the regulators can effectively manage this new activity to avoid the pitfalls of the recent past. However, it seems certain, that if these issues are managed and Dubai can deliver on investors’ desires for certainty, transparency and delivery against promises, then the future looks bright for the Dubai real estate sector.”

Post Arab Spring, Middle East and North African investors have viewed Dubai as a safe investment haven. Recent reports state that investors will continue to invest in the emirate and real estate sector is likely to be one of the beneficiaries. The past few months have shown robust investor appetite for the realty sector. Developers such as Emaar Properties and Nakheel have successfully managed to sell projects off plan.

To ensure investors are aware of risks associated with off plan purchases, the law firm proposes having “warning statements” on developer’s advertising brochures, on JOP Law disclosure statements and on the front cover of the sales and purchase agreement (SPA).

Asked about the future investment preferences, many of the 8,500 respondents to the Hadef & Partner survey did express desire to invest in property in the next 12 months. However, only 20 per cent were interested in investing in the UAE and just 12 per cent wanted to buy off plan.

The law firm said 50 per cent of the respondents were investors or buyers, while the remainder was made up of banking, development and construction/consultant related industry participants.

In regards to developer disclosure requirements, 79 per cent of the respondents said developers should be obliged to disclose “all” of the suggested information if they were to sell off-plan and be given access to buyers money to build the project.

Despite the Dubai Land Department releasing the draft Dubai Investor Protection Law for public consultation in June, the survey found only 28 per cent of respondents were aware of the proposed law, with 56 per cent of those aware saying they were “not familiar at all” with its contents.

“Given the significance and intention behind this law and the impact that it may have on the Dubai real estate market, it appears the message is not getting through and further publicity is needed,” the report said.

The Investor Protection draft law allows a full refund of paid amount to investors if the developer fails to complete or handover a property within a certain timeframe from date specified in the sales contract, deliberately defrauds an investor or alters the specifications of the unit without obtaining requisite permission.

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