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Sun 31 Oct 2010 03:03 AM

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Dubai homeowners could need more insurance

Property regulators are looking to shift control of developments from developers to homeowners

Dubai homeowners could need more insurance
MORE INSURANCE: Dubai homeowners may have to cover up to $1.22bn worth of extra insurance to ensure their policies are in line with the UAEs new strata law

Dubai homeowners may have to cover up to 4.5 billion dirhams ($1.22 billion) worth of extra insurance to make sure their policies are in line with the UAE’s new strata law, a top insurance official said.

Speaking to The National, an Abu Dhabi based daily newspaper, Fareed Lutfi, secretary general, Emirates Insurance Association’s commission for Gulf insurance and reinsurance companies, said that “there were a lot of uninsured buildings” in Dubai, especially within the free zones.

Although the necessary regulations to enforce Dubai’s strata law were only released about six months ago, it has been more than two years since property regulators first introduced the law as they looked to shift control of developments from developers to homeowners.

However, Dubai’s regulators delayed implementing the new rules for the strata law so as to cushion the blow of the crisis on developers.

Developers were supposed to submit detailed paperwork about their buildings by October 13, including jointly owned areas such as lifts, hallways and lobbies.

They were also required to form homeowner associations to handle the transition from developer control to owner.

A key requirement of the law is that all buildings be insured up to their replacement value; however, while a number of buildings have a range of policies, not all are up to strata law levels.

Consultants have pointed out that because a number of buildings and developments do not have ‘sinking funds’ to cover the costs of maintenance and equipment replacement, they have been inadequately maintained.

Together with the greater insurance costs, maintenance fees may also have to be increased to keep buildings safe and operating efficiently.

However, Gary Bugden, executive chairman of PRD Nationwide, a strata consultant and one of the architects of Duba’s strata law, said that it was possible that the transition from developer to owner control could also lead to savings in some cases.

He said that developers tried to extract as much money as possible from owners in the aftermath of the financial crisis, which led to the sudden end of sales of unfinished property.

Some developers had overcharged for maintenance costs by as much as 40 percent, often selling equipment at much higher costs from their own firms, he added.

Bugden said: “This created a situation where the government had to institute integrity into the market, it was essential that the government do that in order to preserve the future of the market.”

The Real Estate Regulatory Agency and the Dubai Land Department have indicated that fines could be levied against companies that have missed the October 13 deadline.

Stephen Kelly, a partner at the law firm Clyde & Co, said that if a developer had not made “substantive steps” to submit the paperwork, then the owners could file a declaration to the Dubai Land Department that could lead to action being taken against the developer.

 

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