2020... 21st century... The United Arab Emirates is one of the fastest-growing economies of the region. Still, certain people are skeptical about investing in properties under construction in Dubai, despite being one of the leading economies in the Middle East and North Africa.

2020… 21st century… The United Arab Emirates is one of the fastest-growing economies of the region. Still, certain people are skeptical about investing in properties under construction in Dubai, despite being one of the leading economies in the Middle East and North Africa.

Nonetheless, it worth saying, Off-plan property investment is considered very safe in Dubai because:

  1. Before starting developing a project, the developer should purchase a land.
  2. Every project is registered with the Government of Dubai along with an escrow account.
  3. The purchase amount is only deposited into an escrow account in installments and released to a developer based on the project completion status.

Also, important to highlight the regular and constant involvement of the Government of Dubai securing all parties in real estate transactions, issuing new laws, bylaws, regulations, rules, creating new government bodies, entities and departments guaranteeing the safety and transparency of the real estate market.

Now, I’d like to go through the reasons people are worried about.

SHORT DELAY

Due to dynamic challenges, it’s possible that a property handover might face a delay. The acceptable delay in the real estate market is considered up to 12 months. In such cases, very important to make sure you check your Sales and Purchase Agreement and find a clause related to the possible delays. Some developers are practicing to compensate their investors in case of possible delays. Slight delays of up to 12 months, is purely regulated by mutually signed Sales and Purchase Agreements.

LONG DELAY

In specific cases, long delays possible, especially if the developer is facing cash flow or legal issues.

Firstly, RERA may cancel a project if a developer is not following the regulations and unable to complete its obligations.

Excerpt from Executive Council Resolution 6 of 2010 Article 23 (1, 3):

“RERA may, based on a reasoned technical report, decide to cancel the development… If the developer fails, without any valid reason, to commence the construction works…” or “If it is proven to RERA that the developer has no intention of implementing the project.”

Secondly, RERA will request all funds to be refunded to payers.

Excerpt from Executive Council Resolution 6 of 2010 Article 25 (4):

“In any case in which RERA cancels a project, it must request the escrow agent (bank) of the project or the developer, if payments are made otherwise than through the escrow account, to refund the amounts deposited in the escrow account or paid to the developer to the relevant parties no later than fourteen (14) days from the date of such cancellation.”

DIFFERENT UNIT

You can simply terminate your relations with the developer asking for a refund without agreeing to accept the unit if the developer delivered to you the wrong unit or a different unit than you’ve discussed and agreed upon.

Excerpt from Executive Council Resolution 6 of 2010 Article 20 (4):

“The purchaser may apply to the relevant competent court to terminate the contractual relationship between the purchaser and the developer… If the developer makes material changes to the agreed specifications agreed to in the agreement.”

DIFFERENT SIZE

In engineering and construction, a certain deviation from an expected size can happen. If you’re delivered a larger unit than agreed, you’re lucky! A developer can not ask you to compensate him for additional size unless otherwise agreed in the SPA. Thus, make sure to read your SPA properly.

Excerpt from Executive Council Resolution 6 of 2010 Article 13 (2):

“Any area in excess of the net area of the sold Real Property Unit may not be taken into consideration. Unless otherwise agreed…”

If your property size is smaller than what you agreed for more than 5%, then the developer must compensate you for the difference based on the price per square foot stated in your SPA.

Excerpt from Executive Council Resolution 6 of 2010 Article 13 (3):

“The developer must indemnify the purchaser if the area of the Real Property Unit is less than the agreed area by more than five percent (5%) of the net area of such unit.”

BANKRUPTCY

There’re some cases where the developer had declared bankruptcy. In such cases, RERA will cancel the project and must enforce a full refund to all investors as per the current and latest regulations.

The first step taken will be RERA canceling the project.

Excerpt from Executive Council Resolution 6 of 2010 Article 23 (8):

“RERA may, based on a reasoned technical report, decide to cancel the development… If the developer is declared bankrupt.”

The second step will be to request a refund to all investors within 14 days from the date of the project cancelation.

Excerpt from Executive Council Resolution 6 of 2010 Article 25 (4):

“In any case in which RERA cancels a project, it must request the escrow agent (bank) of the project or the developer, if payments are made otherwise than through the escrow account, to refund the amounts deposited in the escrow account or paid to the developer to the relevant parties no later than fourteen (14) days from the date of such cancellation.”

The third step is to enforce a refund, extending the payment period for a refund due to various reasons.

Excerpt from Executive Council Resolution 6 of 2010 Article 26:

“If the funds in the escrow account of the project are insufficient to refund the purchasers the amounts paid by them, the developer must refund the amounts payable to those purchasers no later than sixty (60) days from the date of the decision cancelling the project, unless RERA determines to extend such period for valid reasons.”

The fourth step will be RERA supporting all investors to make sure they receive their funds back via other judicial regulations.

Excerpt from Executive Council Resolution 6 of 2010 Article 27:

“If the developer fails to refund the amounts payable to the purchasers, RERA must take all necessary actions to secure the rights of purchasers.”

RUNAWAY

With current regulations of Off-plan properties, it’s almost impossible for a developer to run away with all funds, or at least it makes no business sense today. There’re several reasons I’d like to highlight:

  1. Property Development in Dubai as a business is having a high barrier for entry.
  2. All funds are deposited only to the escrow accounts, not personal or company accounts.
  3. Funds are only to be released to a developer based on the progress of the project.
  4. Progress tracking is only conducted by a consultant approved by RERA.

TERMINOLOGY

Off-plan Property – property under construction, not yet handed over.

Project – property under construction.

Developer – property developer that builds a property.

SPA – Sales and Purchase Agreement between buyer and developer.

RERA – government entity regulating real estate participants. Real Estate Regulatory Agency, part of Dubai Land Department.

Escrow Account – account dedicated for a specific project and monitored by the Government. All funds to be deposited not in the personal accounts of developers, but escrow account.

By Akhmed Idigov

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