Mixed reception for new draft Rera ruling

A new draft rule issued by the Real Estate Regulatory Agency (Rera) to curb the number of developers and restore investor confidence has received mixed reactions by Dubai developers.
Mixed reception for new draft Rera ruling
By Jamie Stewart
Sat 14 Feb 2009 04:00 AM

A new draft rule issued by the Real Estate Regulatory Agency (Rera) to curb the number of developers and restore investor confidence has received mixed reactions by Dubai developers.

The rule states that developers must own 100% of the land they are building on, and restricts them from collecting more than 20% of the cost of the property from the buyer prior to construction.

Payments will also be linked to construction milestones being met by the developer.

"I think basically it will kill the market. I don't see anybody going ahead with many things now," ACW Holdings general manager Ian Pask told Construction Week.

"It's reasonably sensible in that it stops new small players coming into the market, who cannot sell or borrow money to move ahead, so it does some good things."

But Pask remained doubtful and said: "In all the different master-developed communities there is a lot of land owned by speculators who have no intention whatsoever of building.

"So you may end up with a community that is only ever going to be 50% complete for the foreseeable future."

Pask added that ACW will not be affected by the new rule, as it had no plans to launch new projects until the economic situation has become clear.

But the draft was welcomed by GIO Developments chairman Rashid Galadari.

"There is enough liquidity being offered at the outset for the construction company to commence work so it cannot find grounds for delay," Galadari said.

"Along with that, the investor also gets a boost in confidence because he is able to see the physical development at each stage and this reflects money well invested."

Galadari added that his firm had been operating within a similar framework since 2006.

"We have been compliant with these aspects of our business for a long time, and they have always worked for us," he said.

The rule was introduced to curb the number of developers, which Rera CEO Marwan bin Ghalita told CW was causing problems in Dubai's construction industry.

"In Dubai we have too many developers," he said. "Before Rera and the land department took control, everybody in Dubai woke up in the morning and decided that they wanted to be a developer."

Ghalita added that the new rule was also designed to restore investor confidence which has been damaged by project delays by the construction slowdown.

"Investors need to see progress in construction to increase confidence," he said. "As a regulator, I want a real, genuine developer to come to this city."

A newly-formed Real Estate Development Trust Account Department at Rera will run financial and technical audits to ensure compliance with the new rules.

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