HADEF & PARTNERS REPORT ON THE LEGAL STATE OF DUBAI PROPERTY MARKET 2014
Authored by: Hadef & Partners Press Office
EXECUTIVE SUMMARY
Hadef & Partners continually strive to seek feedback from our contacts and clients in order to develop and refine our knowledge and delivery of service. As part of this we conduct a detailed survey of the Dubai Real Estate market every 2 years to help identify issues and trends in the market as well as provide a useful opportunity for market feedback from stakeholders.
Our 2014 Survey was designed to test the current interplay between supply, demand and confidence in the Dubai real estate market. We sought to identify the current priorities of developers and investors, and also assess the impact of market regulations and whether these were effective in stabilising the market and reducing the risk of a return to the devastating crash of 2008.
Looking back on the lessons of 2008 reveals that market forces were not managed well enough. On the supply side, there were too many projects launched by too many inexperienced developers. In essence it was too easy for anyone to acquire land with a minimal down payment and launch ambitious projects with very little track record. On the demand side, the minimal down payments required for off-plan property and the speed of price increases meant speculators flocked to buy off-plan property in the hope they could flip for large profits. This stoked artificial demand.
Many lessons appear to have been learnt and Dubai has put in place a number of initiatives to stabilise the market. Overall, evidence suggests that the Government measures began to have an impact described as “healthy” during Q2 of 2014. This is partly demonstrated by a fall in real estate transactions during July and August 2014 of up to 22%. Average rents were reported to ease, ending consecutive quarters of growth, but our respondents tell us questions still remain about many developers’ ability to comply with contractual commitments and the legal framework underpinning transactions. Further the ongoing roles of developers, purchasers and tenants still require development, and investors are taking a cautious approach in some sectors.
Notwithstanding this more cautious undertone to the market in 2014, new projects continue to be launched. Cityscape Dubai 2014 was said by some to be the biggest since 2008 with more than 280 exhibitors from 28 countries descending on the event. The recent announcements of further “mega” projects illustrate a revival of the real estate market generally, despite the continuing suggestion that credit remains tight. We will all have to wait and see what impact the sliding oil price and the general downward trend of the stock market will have on real estate in 2015.
KEY FINDINGS
OFF-PLAN PROPERTY CONCERNS REMAINS
There is a lingering lack of trust with off-plan property despite the press in the first half of 2014 reporting a wide spread re-bound in this market sector.
Those willing to take on the risks of the off-plan sector show a clear preference for Government related Master Developers rather than less well known sub-developers, and respondents expressed a clear need for sub-developers to differentiate themselves in order to attract interest from serious investors.
The old real estate saying that “Location is King” is still true in respect of off-plan property with respondents also valuing returns, quality and payment plans as well.
Respondents showed a preference for increased equity contributions from developers for their projects. The majority of respondents wanted to see developers fund much more than the current RERA imposed 20% of the project cost from the developer’s own funds so as to ease reliance on third party purchaser funds.
MARKET DIVIDED ON RECENT INTERVENTION
The market is divided on the effectiveness of some of the steps taken by regulators to curb speculation and slow the rate of growth in the real estate sector.
The central bank imposed loan-to-value ratios were widely seen as positive for the market, however, understandably those respondents from a developer’s background disagreed. Interestingly, an overwhelming majority would still like to see alternative non-institutional loan providers enter the market, and a majority of those surveyed said they would consider purchasing property if the LTV ratios were relaxed.
The market is almost split down the middle on the effectiveness of increases from the DLD in respect of transfer charges from 2% to 4%.
WIDE SUPPORT FOR EXISTING LAWS AND REGULATIONS
Respondents showed wide spread support for the existing real estate laws in Dubai with the Escrow Law and the Landlord & Tenant Law seen as the most effective. However, many called for faster implementation of the Jointly Owned Property Law citing concerns about being over charged for services in the current environment.
Interestingly, many tenants confirmed they have successfully challenged landlords who wished to evict them or increase their rent, but most have done so through negotiation rather than resorting to the Landlord & Tenant Tribunal.
There is wide support for the DLD to enable alternative financiers (i.e. other than banks) to register mortgages if they fund development. This would enable wider sources of real estate finance to be made available and ease credit squeezes cause by the banks current real estate loan concentration limits.
There is support for further regulation in relation to the practices followed by real estate brokers with many complaints about buyers being forced to accept payments to brokers who played no part in the transaction or to accept the terms proposed by the broker rather than the seller or the purchaser themselves.
INHERITANCE AND ESTATE PLANNING CONCERNS
Investors are still clearly concerned about inheritance and estate planning issues and there is overwhelming support for the recognition of family trusts and/or the use of companies from non-UAE offshore jurisdictions for real estate purchases.
For the full report please contact us at info@hadefpartners.com