Real estate defaulters targeted by new law

PROPERTY LAW: Payment defaulters will be forced to forfeit 30 percent of sale price under the new law. (Getty Images)

New rules announced by the Dubai Land Department will force property buyers who breach contracts or default on payments to forfeit 30 per cent of the sale price to the developer.

The developer may also delay any payment until the property is resold to another buyer, the Land Department said in a statement.

The new rules, effective immediately, apply only to new contracts.

The Land Department said developers could offer a 30-day deadline to buyers in breach or default of a sale contract to meet obligations before cancelling the agreement and refunding only 70 per cent of the amount paid.

The Department said it has established an interpretation for article No. (11) of Law No. (13) for the year 2008 in regards to regulating the Interim Real Estate Register in Dubai.

The Land Department move comes after Arabian Business revealed that two of the largest British banks operating in the UAE announced new restrictions on lending to individuals.

Several local bank and finance companies have followed the lead of HSBC and Lloyds TSB and have reportedly also restricted lending, especially in the real estate market.

According to UAE daily Gulf News, Emirates NBD, the region's largest lender, has suspended retail credit facilities to expatriate employees working with a few real estate firms due to possible restructuring.

The paper said the bank had suspended banking services to employees of a dozen companies such as Tamweel, Amlak, Damac and its subsidiaries, Daman Investments, Emaar, Nakheel, Sama Dubai, Dubai Properties, Union Properties and KM Properties.

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READERS' COMMENTS

Serious concern
Posted by Tommy C on Thursday 13 November 2008 at 23:52 UAE time


Dubai has lost all of it's appeal. Developers are abusing laws left and right leaving investors with a paper saying "Pay on time, or we take your money no matter what we do, and you can't do anything about it". Now is the real time for developers to step forward, sure it might have been a problem for them if everyone would take their loss (still leaving money enough for the developer to resell at more marketadjusted prices considering the current conditions) and keep the consumption and confidence up in the emirate. The offplan market will die, no developers have the equity they are now blaming real end-user investors for not having (investors without 100% equity is called flippers, making apx. 75% of investors flippers since they need mortgage to do 100% financing. What is the term for developers not having equity and still launching and making never-ending delays to projects to cover up their bad equity at the same time as they're basically forcing investors to default? All this before they finally cancel the projects years after they should've?). Point being, the developers now being able to extend their obligations and offer investors the protection the Land Department should have given them, will be the ones making business in the future.

this aint clear...
Posted by Ron, Dubai, UAE on Thursday 13 November 2008 at 20:06 UAE time

an earlier article said 70% of the paid price to be returned upon resale.. now this article says "to forfeit 30 per cent of the sale price to the developer" Secondly new contracts? as of now..any new ones? or existing 2008 ones? Coz im sure no ones gonna buy anything at the moment.

question for land department?
Posted by nasir, dubai, UAE on Thursday 13 November 2008 at 16:26 UAE time

what happens when the developer does not deliver on time?

what about default by the developer, should the buyer not pay the 30% or recover 30% from the developer.

the rules should be equal.

This law does nothing for the investor...quite short sighted actually.
Posted by Simon on Thursday 13 November 2008 at 16:07 UAE time


This new law does nothing for the investor or potential home owner.

It falls in the favour of the developer to protect them from people making a 'run' on the developers to get their money out of the real estate market much like we have witnessed investors taking their money out of banks in the US and Europe.

But in actual fact it doesn't quite do that because if your contract pre-dates 31st August 2008 you are still entitled, in default, to 70% of the original amount paid to date...and if I am correct, I believe to a maximum of 30% of the original purchase price. So a 'run' on the developers could still occur...potentially.

But coming back to the new law however, if I were looking to purchase property in Dubai, I'd have to really consider the consequences of not being able to carry the contract to the end.

Why? Because in the new law...

1. The developer is the one to put in a cancellation notice to the lands dept and NOT the owner of the contract. Will the Developer do that in a timely manner? I don't think so.

2. The developer is the one to then market and resell your unit prior to you getting your refund back. Could you honestly trust any developer in Dubai to tell you when the unit has been sold? And trust them to give you your refund cheque in good time? I don't think so. Developers here at best are very slow payers.

3. If the Developer still has stock remaining on his books, is that developer seriously going to resell your unit before selling the last of what he has? I don't think so. Seriously, the developer will do everything to avoid paying a defaulter their money back.

These few issues alone are enough to say DO NOT buy property until this law is reversed.

The law put in place because of the very serious threat of a 'run' on the developers. If that had happened the market would have gone into real meltdown. No developer would have been safe.

So to protect the developers they have alienated the 'buyer'! Not a good move at all.

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