Pitfalls of the Dubai property market

Published on 10 Aug 2010 under category: article

Dubai streets haven't always been paved with gold
By Dan Hyde

As published on emirates247.com – 14 July 2010

The Dubai property market experienced such a boom over a six year period that could never, with hindsight, be maintained.

For a time it seemed the streets were literally paved with gold. The gold rush for property was driven by the rising price of property, the desire to be part of the success story and, in part at least, the lack of regulation that offered potentially high rewards to the speculator. Many wanted a piece of the action and were prepared to take risks in the hope of high reward.

It is perhaps that the Dubai property market was such a success for so long that the inevitable downturn came as a sharp contrast. In virtually every property market there are peaks and troughs, cyclical highs and lows. Dubai is no different; what exacerbated the problem was the apparent lack of transparency and regulation in a relatively immature property market. The speed with which the downturn arrived and the realisation of the risks of inadequate regulation meant the difficulties were condensed and heightened. One of the drivers of investment, lack of regulation, now drove and exacerbated the downturn.

One key area where regulation was essential was off-plan purchase. The property did not yet exist and the purchaser, hoping to secure at the best entry price, might be tempted or induced to pay a large deposit. In some instances this could be as much as the entire purchase price. In other instances the deposit would grow larger as the purchaser was pressed to increase the payment. The potential reward was a property that, when completed, was worth much more. The risk, it transpired for some, was that the property was never built. In that situation the purchaser sorely needed concrete regulation and effective routes for redress.

The advent of the Real Estate Regulatory Agency or RERA (Dubai Bye-Law 85 of 2006) was an important and welcome move. It regulates by arbitrating disputes, standardising forms and procedures, accrediting and certifying developers and, significantly, protecting deposits by ensuring developers hold client money in an escrow account and real estate agents rather than the seller hold a buyer’s deposit. The system is not foolproof and there were teething difficulties as some elements were voluntary (rather than mandatory) and the take up of certification was slow with a significant number of agents not certified by RERA.

The future pitfalls then should be easier to spot and avoid. Prudent buyers will ensure they use a reputable, certified agent and will doubtless proceed with rather more caution and realism than when a booming market induced high risk and speculation. The use of a specialist law firm should also be a must if the purchaser is to ensure that the purchase is ultimately prudent.

For some however all of the above may be cold comfort; those who have purchased off-plan properties and parted with large amounts of money for a property that hasn’t been and perhaps won’t be built will declare that the stable door is being closed after the horse has bolted.

Here then are some of the possible solutions to the problem:

-You may be able to negotiate a fair settlement.

-If that fails you may consider carrying out a risk assessment, ie investigating the prospect of achieving a settlement and the ability of the other party to pay.

-If that indicates a worthwhile prospect you may be able to arbitrate or litigate (court action) to achieve a settlement.

It should be noted that there may be an alternate jurisdiction (other than Dubai) available to try and achieve the above.

For example, if you had instructed a UK law firm with an overseas office in Dubai the retainer, or put simply your contract with that firm, may be governed by UK law and regulation.

This is something that requires expert advice; if it applies to you then there may be a distinct advantage in pursuing the law firm in the UK where it can be shown they acted negligently. This again is an area for expert advice but essentially the question is whether the firm provided a level of professional care which could reasonably be expected of it. In the UK law firms are regulated by the Solicitors Regulation Authority and must have adequate insurance in place to cover the risk of negligence. In addition the UK has a comparatively quick and effective legal system if negotiation fails and litigation has to be pursued.

If you have tried and exhausted the options through your own efforts then, if you still wish to pursue the matter, consider obtaining expert legal advice on the global strategies available to you. The hope is that with a maturing and increasingly regulated property market there will be less risk for the future purchaser and more effective remedies for those that bought and lost.

Dan Hyde is a white collar crime specialist at Cubism Law