In Dubai, which has experienced a construction boom over the past six years, real estate prices have fallen at 4%. According to Gulf News, real estate prices in the most prestigious projects located in the areas of Burj Dubai (the "Dubai Tower") and man-made island Palm Jumeirah, fell by 20-40%.
With questions about the crisis, falling real estate prices and ways to protect investors, we turned to lawyer Ahmed Kashwani, managing partner of Kashawani Law Firm, and Angelika Shcheglova, director of the real estate company Dacha Real Estate.
It may seem that many investors in the local real estate market are looking for a way out of the impasse. What is the reason for this - a general recession in the economy or something else?
Many UAE real estate investors are in a very difficult situation. The crisis and inflation have led to a change in the financial status of many of them. Unreasonable delays in the construction of facilities, and sometimes their complete cancellation, are steadily undermining confidence in the Dubai market, which not so long ago seemed unshakable and absolutely reliable.
Therefore, at present, the priority desire of investors in Dubai to fully repay their invested funds is completely understandable. Unfortunately, this is not always possible, but there are a number of alternative solutions that help to get out of this situation with the least losses.
What options are offered to investors?
There are not as many options as we would like, but they nevertheless exist. Take, for example, those who invested in several construction in progress from one developer, where each of the objects was only partially paid. Such investors can be advised to reduce the number of objects by recalculating the already deposited funds, thereby fully or almost completely paying them to the level where no further payments are required over a long period.
You can also advise to reduce the cost of the object. After all, many bought real estate at prices that today are far from reality. For example, the cost per square foot in some projects amounted to 5000 dirhams, and their construction has not yet begun. And if we compare the past with today's prices of 1000 dirhams per square foot, it is very difficult to justify the continuation of payments for an unfinished or not started project at prices 5 times higher than the current market prices.
You can also advise investors, try to link payments to the construction stages, and not to calendar dates, or delay them until the project is actually completed.
As speculators, did not many developers realize that sooner or later the market would collapse?
Of course, they understood. But, as you know, who does not take risks ... And investors took risks, but nobody canceled the laws of the market. However, this does not in any way mean that the rights of investors should not be protected. Many overly and, as we now see, completely unreasonably trusted the market, because they were lucky, and for a long time the market allowed them to earn great money. Do not blame them, let alone punish them.
Do not you think that the main "blow" fell on the developers? Moreover, they are not always guilty of construction delays? Is it fair to force developers to review the terms of the contracts that investors have agreed to?
A contract is a voluntary agreement of the parties that establishes, changes or terminates their rights and obligations. Therefore, the question of the intention of one of the parties to terminate its obligations under the contract is admissible and legal. We cannot but draw your attention to the fact that most of the contracts are very one-sided - they are written in the interests of developers, and in no way protect the interests of investors. In a number of cases, to this day, investors have not even received such sales contracts, and their payments were made on the basis of only real estate reservation forms. In some cases, our customers do not even have reservation forms, but only copies of checks or bank transfers made on the basis of verbal agreements. Only the timely assistance of a professional lawyer will help you understand all the details of the contract in order to most effectively protect your rights and comply with your duties, without violating the rights of the other party and taking into account all the nuances.
How legally competent are the purchase and sale contracts, despite the fact that in most cases they infringe on the rights of investors?
Basically, the contracts were drafted very competently legally, which was misleading to a huge number of investors. That is why we are always talking about the need to seek mutually beneficial solutions, negotiate with the developer and only in extreme cases contact the courts. To conduct a trial and, moreover, to win a case in court is a long and stressful process. And before entering into a judicial relationship, you must make sure that at the time of receiving the court decision in your favor, the defendant will have something to answer.
The escrow account was supposed to be able to save and then return the funds of investors, right?
You are absolutely right. One of the most important steps taken by the Government of Dubai to protect foreign investment, as well as to increase the reliability of the Dubai real estate market, was the adoption in 2007 of Law No. 8 “On Escrow Accounts”. The law provides that all cash proceeds from the sale of real estate at the “off plan” stage (design and construction start) should be credited to a special account and used in the future only to finance this particular construction. In case of violation of the construction terms, the Dubai Real Estate Market Supervision Authority (RERA) has the right to freeze the funds available on the guarantee account, and in case of bankruptcy of the developer or cancellation of the project, investors will receive compensation. Thus, RERA acts as an arbiter in resolving disputes between the buyer and the developer. However, in practice, the situation is different.
That is, today the system is still not efficient enough to inspire investors again with confidence?
We can not talk about the inefficient operation of the system. We can only state the fact that, unfortunately, no system is insured against unscrupulous developers. Currently, a number of new bills are being developed, the adoption of which will help Dubai regain investor confidence and adequately overcome the crisis.
How do you resolve disputes today?
Basically, by negotiating with developers, both on behalf of and together with customers. Our main task is to achieve mutually beneficial agreements between the parties, while observing all the necessary formalities. If negotiations do not lead to the desired result, we have no other choice but to go to court.
If the project is “frozen”, is the developer obliged to fully compensate the investor for his investments?
The answer to this question is clearly and clearly spelled out in paragraph D 11 of article of Law No. 9 of 2009, namely: "If the construction of the object is suspended for reasons beyond the control of the developer, the developer has the right to terminate the contract by deducting 30% of the amount paid by the investor" .
Delays in terms occur in any real estate market. But what is considered acceptable?
Article 17 of Law No. 8 of 2007 stipulates that if the construction of the property has not been started within six months from the date of issuing the permit for the sale of real estate “off plan” without any valid or acceptable reason, the developer is excluded from the official register, which has the right to carry out activities.
Can anyone control this?
As already mentioned, RERA, the Dubai Real Estate Market Supervision Authority, is responsible for monitoring, whose main task is to timely update the database on registration of new objects, stages of ongoing construction, as well as providing information on suspended or "frozen" objects.
Is there no such practice - when canceling the construction of an object, pay certain penalties?
Let us once again turn to the aforementioned Law No. 9, which absolutely clearly enshrines the following penalties:
- If the project is built at least 80%, the Developer has the right to fully withhold the amount already paid by the investor and demand repayment of the remaining contract.
- If the project is built at least 60%, the Developer has the right to terminate the contract and withhold 40% of the total cost of the object.
- If the construction of the project has not reached 60%, the Developer, upon termination of the contract, is entitled to withhold 25% of the total cost.
These penalties are imposed only on investors, as is the law as a whole.
In legal terms, what needs to be done to regain investor confidence?
The economy in Dubai is heavily dependent on trade, investment and tourism. However, the recent monetary policy in the country has dealt a serious blow to the economic development of the state. According to experts, the economic development model in Dubai is highly dependent on foreign capital and large-scale international projects. The government needs to develop a program to stimulate the economy in the near future, otherwise it will be difficult to regain investor confidence in the short term.
As a rule, no one thinks that, first of all, you need to be able to navigate the laws that regulate sales transactions and protect your rights. Timely appeal to professionals who are well-established in the real estate market will help to get complete information on projects and prices, as well as the necessary legal support, which, no doubt, will help to significantly speed up the process, save your time and money, save your nerves.
Kashwani Law Firm and Dacha Real Estate are always at your service.
The range of our services:
- Purchase and sale of finished apartments and villas;
- Purchase and sale of offices and non-production premises;
- Planning and implementation of investments in crisis price fall;
- Before and after-sales service (preparation of a package of documents for the sale of property);
- Rental of residential and non-residential premises;
- Consultations of lawyers on real estate issues;
- Registration of firms and offshore companies;
- All types of legal advice.
