Homeowner protection law not foolproof

The recently introduced escrow account law is not a full performance guarantee for UAE property purchasers, according to David Nicholson, legal counsel at Nakheel.

Speaking at the Cityscape real estate expo in Dubai on Thursday, Nicholson advised real estate buyers to conduct their own due diligence when researching a local property developer.

"The escrow account law is not a full performance guarantee. Buyers should seek sufficient information on their developer. The escrow helps but the developer must also have sufficient equity or loan finance or the development may still not be built."

Despite issuing the warning, Nicholson said Nakheel still felt the introduction of the accounts was a win-win scenario for both developers and buyers.

"It's a win-win for developers because it gives them a marketing edge, and it's a win for consumers but its just not a full performance guarantee."

In view of increasing regulations in the UAE market, developers must be prepared to give full disclosure of material facts regarding their projects, he added.

"The market is changing, there are more and more developers. To be successful, developers are going to need to be more transparent."

In regards to mortgage law, Nicholson said the strong market meant he did not see a mortgage default between 2004 and 2007. He attributed this to borrowers who had difficulty making payments selling quickly and easily at premium.

However, this practice would change when price growth began to slow, he said.

"The test will come when the market flattens and it will flatten."

If the market flattening resulted in a rise in interest rates, borrowers may start to defaults re-payments, he said. This could see severe consequences, with banks refusing to lend, he added. With this is mind, Nicholson is a proponent of separate foreclosure processes and laws.

Meanwhile, legal discussion at the event included speculation on the anticipated introduction of a time-share law, property investments funds law and strata laws within the region.

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