07 Dec 2010

WHAT IS THE LEGAL STATE OF THE DUBAI REAL ESTATE MARKET?

Authored by: Michael Lunjevich and Brent Baldwin

WHAT IS THE LEGAL STATE OF THE DUBAI REAL ESTATE MARKET

Hadef & Partners has published its What is the legal state of the Dubai real estate market report. Prepared by Michael Lunjevich and Brent Baldwin, this article is an extract from the report and highlights the key themes emerging from the survey. Plus, watch an in-depth interview with Michael as aired on Dubai’s City 7 TV.
 
Download a copy of the report.
 
Watch an in-depth interview with Michael Lunjevich where he explains the purpose and outcomes of the survey, as aired on Dubai’s City 7 TV.

Watch an interview with Abdulrahman Juma where he explains the purpose and outcomes of the survey as aired on Dubai TV's Darahim. This interview is in Arabic.
 

The Dubai real estate market has faced significant challenges since turmoil gripped global markets in 2008. Many participants have expressed discontent with transactions previously considered to be attractive and the inevitable renegotiation, restructuring and disputes cycle associated with all downturns has gathered momentum. Although the media is full of participants’ views of the needs of the real estate market, it can often be difficult to determine degrees of objectivity due to the level of personal emotion involved.
 
Hadef & Partners has been informed this is the first survey to assess views on the legal status of the real estate market in Dubai. In undertaking this initiative, we have sought to create a forum that provides market participants with a mechanism to identify and discuss the key issues they consider may help restore confidence and growth in a market which has been adversely affected by global market forces and recession. In addition, Hadef & Partners has identified actions that could be considered to address those key issues with the aim of assisting the recovery of the market.
 
The survey was conducted by Hadef & Partners in September and October 2010, which invited respondents to consider a series of issues relating to the legal status of the Dubai real estate market. Over 500 completed responses were received and many respondents took the time to provide detailed and extensive comments. A number of key themes emerged from the survey, including the following:

  • It is widely recognised that Dubai has taken considerable steps towards becoming a more sophisticated real estate market in the last five years. Although the Dubai real estate market is considered to be significantly more advanced than all others in the MENA region, it is generally believed that Dubai has some way to go before its real estate market can be compared to the likes of London, New York and other leading cities in the global real estate market.
  • Most respondents consider that a holistic and coordinated approach would enhance the opportunity for market recovery. Ultimately there is no single solution to the market issues and no market segment participant can address all aspects alone. The target should be an objective view of the appropriate group of stimuli required and a coordinated medium to long term plan should be implemented as soon as practicable to achieve the desired results.
  • There is a need for better communication and awareness of current laws and regulations, and a desire to ensure greater enforcement of the existing legal framework.

Favoured market stimulus options suggested by respondents include:

  • more flexible residence visa options for owners/investors
  • enhanced finance options for real and sustainable end users
  • greater transparency on project cancellations and suspensions to ease concerns over the projected rate of further supply
  • co-ordinated planning and supply control;
  • more equitable arrangements for the return of investor funds on projects that will not be completed in a reasonable time frame
  • efficient and less expensive dispute resolution procedures, together with enhanced access to information
  • greater access to information on the financial viability of developments to enable informed investment decisions.

Although not all of the above options are necessarily viable or required, it is considered that all participant segments may have contributed to some extent in taking advantage of the immaturity of the market and its early stage regulatory status, and these same participants now need to work together to help stimulate a staged and effective recovery.
 
Some lawyers may claim that the current crisis could have been less dramatic had lawyers been more involved during the boom. However, this may or may not be correct and some respondents feel that advisers also contributed to the current level of problems.