There are endless possibilities for developers to negotiate resolutions to disputes in this market, but there also needs to be an acceptance on the part of both developers and purchasers that there is going to be loss/loss on both sides, if they still have 2008 expectations
Even with legislation, are investors and developers really going to be able to recoup their monies through the UAE courts?
The issue isn’t so much whether the UAE courts will order a refund, but whether the developer actually has the cash available to pay it. If a contract has clearly been breached then there are existing laws available which will assist both a purchaser and a developer. The difficulty is that many parties do not have the money to go to court and are relying on the DLD to assist them. In addition, specific performance requiring a purchaser to continue can be difficult to win in court, and even more difficult to enforce. As an alternative to court proceedings, many people have been waiting for new DLD policies which are aimed at
Brent Baldwin
There has been a degree of resistance
on the part of some developers to the new law, not just because of losing control over service charges but also relating to the relinquishment of control and ownership of common areas. Many developers did not contemplate transferring common areas to the ownership of purchasers. Some developers have not been
as transparent as they could be about service charges and this disparity has angered some owners who are now asking to see audited accounts. In many cases RERA has been trying to regulate service charges which in turn means some owners have refused to pay until they have RERA approval. This reinforces the need for the regulations to be implemented as soon as possible so this uncertainty is clarified.
assisting purchasers in developments that are not going to be completed. As I mentioned earlier, it is hoped that when it is gazetted Decree No. 6 may provide a useful alternative to going to court. Of course if the developer simply doesn’t have the funds then that is an underlying problem, and vice versa with a developer looking to a defaulting purchaser for further payments. I think it is going to take time for a whole lot of issues like that to work their way through the system here – there are bound to be a lot more insolvencies during the coming months, although the situation may improve when the banks start lending more freely again. At the end of the day, it’s a supply and demand issue. Does the market really need all these new units? Are there people to fill them and pay for them?
What other legislation has the potential to boost consumer and industry confidence?
Apart from the strata regulations and the consolidated Abu Dhabi property law, the Dubai trust account law for real estate agents will increase investor confidence. To date, real estate agents have been operating relatively unregulated when it comes to holding client funds. Although they’ve had to be registered they haven’t been required to operate a fully-fledged trust account. Agents need to be operating under very strict trust account principles so that money that goes into their account is held specifically on behalf of their client and can’t be used for other purposes or get caught in an insolvency situation.
What can developers do to avoid entering into potentially reputation-damaging litigation?
There are endless possibilities for developers to negotiate resolutions to disputes in this market, but there also needs to be an acceptance on the part of both developers and purchasers that there is going to be loss/loss on both sides, if they still have 2008 expectations. There are good alternatives to litigation provided both parties are realistic in their expectations. There has been a lot of consolidation going on and issuing of credit notes, but we are still seeing situations where developers are offering consolidated units at prices that were right at the top of the market 12 months ago. At the same time some purchasers have expectations of receiving outright cash refunds. Provided all involved parties negotiate with realistic expectations the market should start to sort itself out and I think we are slowly starting to see that happen now.
apr-may 2010
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