Monday 8 November 2010, Dubai: Leading UAE law firm Hadef & Partners, today published its What is the legal state of the Dubai real estate market report.

Hadef & Partners' Real Estate & Commercial practice head, Michael Lunjevich explained the purpose of the report: "The report seeks to create a forum that provides market participants with a mechanism to identify and discuss the key issues they consider may help restore confidence and growth in a market which has been adversely affected by global market forces and recession. In addition, Hadef & Partners has identified actions that could be considered to address those key issues with the aim of assisting the recovery of the market."

In what is believed to be the first of its kind survey, Hadef & Partners assessed views on the legal status of the real estate market in Dubai. Over 500 completed responses were received between September and October 2010, and many respondents took the time to provide detailed and extensive comments.

Key themes emerging from the survey:

  • Many respondents felt the current laws and regulations were developer friendly and that an increased awareness of the needs of demand generating participants (ie investors, banks and institutions) was required.
  • There is a need for enhanced communication and awareness of current laws and regulations, and a desire to ensure smooth implementation under the existing legal framework.
  • A holistic and coordinated approach would enhance the opportunity for market recovery. A quick fix is not likely to succeed and a targeted group of stimuli is required and a coordinated medium to long term plan should be implemented across the market.
  • It is widely recognised that Dubai has taken considerable steps towards enhancing the sophistication of the real estate market in the last five years and is the regional market leader but it has some way to go before it can be compared to the likes of London, New York and other leading markets.

Favoured market stimulus options suggested by respondents include:

  • more flexible residence visa options for owners/investors - 88% of respondents thought that enhanced options would aid recovery;
  • enhanced finance options for real and sustainable end users - 88% of respondents feel that improved finance availability would assist in market recovery and approximately 75% of respondents believe that financial institutions are not adequately supporting the Dubai real estate sector. However, Lunjevich notes: "financial institutions had also been affected by market conditions, and several comments were received indicating awareness that some banks may hold loan books that are valued higher than the current value of assets securing them.";
  • greater transparency on project cancellations and suspensions to ease concerns over the projected rate of further supply - 97% of respondents consider that greater transparency would assist the recovery of the market and 87% of respondents feel that public announcements of cancellation of projects would assist the market;
  • co-ordinated planning and supply control, many respondents expressed concern with current supply control and city planning issues. Brent Baldwin, associate in the Real Estate & Commercial team who assisted with the survey added: "Dubai Municipality, Tecom, Trakhees and other bodies have their own rules which means that it can sometimes be difficult to ascertain who is maintaining oversight of the wider Dubai product mix (i.e. commercial, retail, residential) and the level of unit building approvals and related delivery timescales. A central body may be able to coordinate all building approvals, development applications, set plot boundaries and sizes and manage development phases and timelines. One of the key responsibilities of such a body could be to balance real estate supply with demand and smooth the transition of the market into a leading urban planned city."
  • more equitable arrangements for the return of investor funds on projects that will not be completed in a reasonable time frame - 90% of respondents believe developers who cancel or place developments on hold without a definitive completion date should be required to pay loss of profit related damages to buyers who are not in default; and
  • efficient and less expensive dispute resolution procedures, together with enhanced access to information, many respondents highlighted a desire to have some other formal procedure in place that does not require the time and expense of going to court, indicating they would be content if such an alternative procedure was run through RERA or the DLD, provided those entities have the power to make decisions.

In summing up the legal state of the Dubai real estate market, Lunjevich said: "It is the view of Hadef & Partners that the current suite of laws is adequate to address the current market dynamics.

However, the existing laws require more prescriptive and clear regulations to specify the boundaries of law that cannot be crossed, and the consequences of breach. However, he noted that the Dubai Escrow Law has not achieved all of its objectives and a re-think may be needed on how this is implemented. Lunjevich also commented that: "Dubai now has the opportunity to compete with the world based on low costs of production, decreasing real estate prices, low rental values and world class infrastructure. If managed well, these benefits will lead to real and long term inward investment and sustainable organic growth which will in turn spur greater demand for prosperity in the medium to long term."

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