According to “The National,” a major Dubai newspaper, Dubai is expected to release yet another set of laws governing the property industry. There is a growing number of disputes between small property investors and developers in Dubai and prices continue to fall. This is what The National has to say:

The Government recently published Law 9 of 2009, an amendment that introduced a sliding scale of refunds for buyers who defaulted on their purchase plans for property in off-plan developments.

But the bigger changes are likely to come with the introduction of regulations this summer, possibly as soon as next month, which provide details on how Law 9 and other property laws are to be interpreted and administered going forward.

Law 9 provided the clearest guidelines yet about the issue of defaults and significantly increased the power of the Real Estate Regulatory Agency (RERA) and Dubai Land Department by making them the final judges on every default, and giving RERA the authority to cancel projects.

“The whole purpose is to put the purchaser in a situation of security,” said Mohammed Kamal, the head of the property practice at Lovells. “Currently there are some very bad situations where purchasers have no certainty on what is going to happen.”

Emad Farouq, a senior legal counsel at the Dubai Land Department, said recently that the new regulations would mostly focus on the procedure for terminating a purchase agreement, the payment of damages, and the rights and obligations of a developer when reselling a unit after a contract was terminated.

One problem with the law by itself is that many cases fall outside of the situations described in its wording. One example is a purchaser who has paid 80 per cent on a home, but defaults on the remaining amount after completion of the unit. Law 9 says in this case, the buyer loses all their money, which would be clearly “unfair”, said Michael Lunjevich, the head of the property practice at Hadef and Partners.

In this case, the regulations should spell out a situation where the buyer could still receive the unit and owe the developer the remaining 20 per cent, Mr Lunjevich said.

“The broader regulations being discussed will take into account the totality of the property laws and the overall purposes of the changes,” he said.

The regulations are expected to deal with how RERA will assess a project’s viability before making a decision on how to cancel it. For instance, RERA might work with third-party experts to determine the viability of projects, Mr Farouq said.

One of the most pressing issues, according to lawyers, is what happens in cases where RERA cancels a project but there is no money left in the escrow account. According to the law, the investors are supposed to receive a complete refund.

“Investors are calling me every week with situations like this,” said Ludmila Yamalova, a lawyer with Al Sayyah Legal Consultants and Advocates in Dubai. “There needs to be some kind of mechanism besides just going to court.”
Lawyers said possibilities would include a RERA-sanctioned auction of assets such as land or, if the project is further along in development, the sale of an unfinished building to a distressed asset fund.

But not all cases will be resolved to investors’ satisfaction. The economy was entering a painful cycle that would see the end of some developers and many investors losing money, said Mr Lunjevich.

“People got caught up in the euphoria of the never-ending boom,” he said. “Some people jumped on the boom wagon too late and it is devastating their financial position … we need to get down to the cold, hard reality of ambitious projects not being built and people losing a lot of money.

“In 12 to 18 months, Dubai will get rid of the bad investors and the bad projects.” Source

I feel this move is unlikely to do anything other than confuse an already confused situation. These new rules come after several other sets of regulations have been introduced, most of which were “interpreted,” in favor of the developers.These are some recent articles about the situation in Dubai:

• A group of investors is petitioning RERA to cancel a project which was misleadingly sold as part-built, when in fact there is just a hgole in the ground. Property investors scammed in Dubai
• The recently amended law no 9 still favors the developers - all of which are government-owned. Law number 9 favors Dubai developers
• Dubai’s first property auction was a flop. Dubai property auction
• Dubai would appear to be a risky investment destination at the moment. Buying investment property in Dubai
• The luxury end of Dubai’s market has been hard hit by the downturn. Dubai luxury real estate

The amount of property for sale in Dubai is now having a strong effect of rental yields. Unable to sell, many owners are putting their property on the market as a rental unit instead. This is having a marked effect on rents. RERA (The Real Estate Regulatory Authority) published its new guidelines, showing a 50% fall in rents in certain areas of Dubai and Landmark’s report this month shows a further 30% fall in Palm Jumeirah and recommends even cheaper rents than RERA’s.  This is good news for prospective tenants, and suggests we still have some way to go before Dubai’s property crash bottoms out.

“Since our last price map published at the end of March, we’ve seen a shift towards leasing. Owners are unable to sell their units and they are unwilling to lower their prices. They are adjusting their investment horizons and turning to leasing to generate revenue,” said Jesse Downs, director of research at Landmark Advisory, the consultancy division of Landmark Properties.

Real estate broker Landmark in March published a rental index to better reflect the cooling market, after RERA’s first guidelines in January were criticised because it measured prices at the top of the market last summer.

In a report last month, investment bank UBS said house prices and rents in Dubai could fall by 70 percent from peak to trough amid the property collapse.

Landmark said its new lower rental limit for a four bedroom villa on the Palm Jumeirah is now AED270,000, with a two bedroom apartment at JBR and the Marina costing AED120,000 and AED85,000.

Rents for three bedroom townhouses in the Springs have declined 50 percent since the final quarter of 2008, Landmark said, and are priced at AED130,000 a year.

“Of course, the market is driven by the end-users and the average end-user is now motivated largely by value maximization – in other words, getting the best price for a high-quality home in a completed community,” Downs added.

One thing about the global downturn that could be considered positive is the amount of scams and cons coming to light, and the small property investor has certainly been prey to many. In a booming economy, many of these were written off and the injured parties pleas for assistance were ignored.

But several groups of small investors are fighting back. The problem appears to be all over the world. The more tha market was booming, the more the con men took advantage of ignorant investors with an eye on the pot of gold at the end of the rainbow. We can all see the pot of gold vanishing into the bottomless pit of the global banks losses and a backlash around the world is happening, both against the multimillion pound/dollar payoffs of the bank executives and the obvious scammers in the property investment world.

If you have been conned, scammed or are discovering that the small print in your contract does not cover you as well as you were persuaded it was, here is some news and a few resources to help you.

Small investors in the Trump resort Baja, which has been canceled are suing the developer “Irongate,” which has been withdrawing monies from an escrow account with no intention of completing the building.

Many of Dubai’s developers are showing their true colors and “screwing the small investors to the wall,” would not be overstating things. There are a number of groups around where a number of investors are banding together in an effort to obtain fair treatment. Hydra investors have a group here - Hydra Facebook group. Beware the facebook groups run by developers - you will be able to tell the difference - they are the ones that say Dubai is not having a financial crisis.

Two groups of investors are pressuring RERA in Dubai: The Emaar Investor Group and the Dubai Property Investors Group, unfortunately I have not yet been able to find contact details for either of these. Please leave me a comment if you have one.

The Cypriot government is being pressured to change the law to prevent unscrupulous developers in Cyprus from holding on to titles of property purchased and using the title as collateral.

Spain. What to say about Spain? What a mess ! With unemployment expected to reach 17-21% over the next two years, minor politicians being arrested for corruption all over, most sellers in denial and illegal building scams all over the news, it is hard to be positive about Spain at the moment. Buildings are being demolished all along the coast.  I am sure there are or will soon be some bargains to be had for the small property investors in Spain, but for now, this is a good blog to read - Costa Del Sol property blog. There are a number of discussion groups here.

After months of press releases and government promises that there will be no such thing as a bubble in Dubai, the big boys of Dubai are finally saying, “Beam me up Scotty, I think I’m in trouble.”

“Trouble,” would be the understatement of the year, and the developers are making it clear they are not one whit interested in the fortunes of the smaller investor. Despite the recent introduction of laws written to protect smaller investors, Dubai’s property developers are thinking up new ways of avoiding any responsibility and screwing every last penny possible from the situation as fast as the new laws are passed.

MiNC, developer of Prodigy 1 in Jumeirah Village South has put a new proposal to their current investors:

Pay more than the agreed price, or we will cancel the project and keep your deposit.

The wording was slightly different, but that is what it amounts to. According to MiNC, two banks have withdrawn funding and “the project is no longer financially viable. Costs have increased to the extent that MiNC would make a significant and material loss if it were to build this project.”

Gulf News

It is actions such as this that will finally deflate what is left of the Dubai bubble. A lot of confusion is surrounding Article 11 under Law 13, which guarantees investors - “In the case of canceling the contract, the developer may retain 30 per cent of the ‘contract’s value’, and the rule of (30-70 per cent of the money paid) shall be applied on amounts exceeding 30 per cent.”

Key words here are “contracts value,” not “monies paid,” as the Article originally stated. Arguments abound and opinions are divided amongst those who feel that Dubai no longer needs outside investors and the emphasis of government intervention should be in favor of protecting the developers, and others feeling (as we do) that the smaller investor is vital if Dubai wishes to be anything more than a “Disneyland in the desert.”

As things stand at the moment, if a small investor defaults (as is starting to happen on a large scale), the developer keeps 100% of the money in some cases, and developers are simply refusing to answer questions or deal with inquiries. A number of smaller investors are attempting to band together in an effort to at least recover the “70% of monies paid.” One such group can be contacted here:

investorslaw13@hotmail.com

Elsewhere, prices are falling dramatically, with distressed properties being offered at 40% discounts on Palm Jumeirah, which is still massively over-priced. If falls in the US and Spain are any indicator, some analysts are expecting Dubai’s prices to fall anything as much as 60% in the next few months.

Other property websites are now starting to report on Dubai’s bursting bubble, and here is a selection:

Reuters - Dubai real estate suffers as distressed sales rise
AOL Dubai Property boom halts as prices fall and jobs go

According to Mohannad Sweid, CEO of Depa, some of Dubai companies are in “denial” about the viability of projects in light of the global financial crisis.

We are at the denial stage where lots of developers know for a fact that their projects should be cancelled and they’re either not announcing it or they’re saying it’s going to be delayed. We cannot deny the effect [the crisis] has been having, we are a part of this world and I believe it’s just not right to say we haven’t seen any impact. What we have had in the GCC in the last three years is the difference between reality and non-reality. Our market research showed there will be 280 new hotels built over four years within the GCC. That was advertised all the time… If we look at the reality - how many hotels have been delivered - it’s hardly more than five or six hotels a year.

In terms of risk to his own firm, Sweid was confident that infrastructure projects would still go ahead.

In this region, a lot of infrastructure is not developed yet and these elements of infrastructure have to be developed - it’s not a choice,” he said, citing Dubai’s new metro system as an example. He added that Depa was still on track for growth for next year, but the “fears” were for 2010 and 2011.

The real question is not whether the Dubai bubble has finally burst, but more how far it will deflate. With property prices quoted as having risen somewhere in the region of 76% over the last year, a major correction is likely. Already prices have fallen 40% in most developments, and we feel it is going to deflate a lot faster than it blew up.