Progress for investor protection
Manish Narayan, Senior Associate at leading Middle East law firm Galadari, analyses the ‘Draft Law on the Protection of Property Investors’ and its importance with regards to the development of the Dubai real estate sector.
The first quarter of 2015 might have seen a relatively slow property market, but this has not stemmed the launch of new off plan projects, which can raise concerns around the protection of investors in these projects, given that so much of the project and its potential returns are unknown at this stage. The Dubai Real Estate Investor Law (“DREI”), the draft of which was first issued in 2012, is designed to offer such protections. Currently pending approvals from the Dubai Rulers Court, the DREI and its provisions need to be analysed in the context of the wider development of the real estate sector and the evolving regulatory framework.
During the past decade Dubai has seen a number of regulations being put in place to secure the rights of the investor, such as the Escrow Law and Interim Registration Law. More recently, the Real Estate Regulatory Authority (“RERA”) has tightened the norms for developers entering into the market.
Details of the law
Chapter II of DREI introduced several disclosure requirements on the developer before they can announce a new project. Further it states that the developer shall be bound by the disclosures made. This in our understanding will allow for an increased level of due diligence on the part of the investor before making an investment decision. Typically, due diligence was relegated as low priority or often totally ignored by the investors as part of the project risk assessment. This was partly due to lack of corporate and financial information which could be accessed by members of the public. The DREI disclosure requirements need to be supplemented by institutional mechanisms creating greater transparency and access to information.
When it comes to the contracting process, what was earlier referred to as a reservation contract has been substituted by an Attachment Bond. After the execution of the Attachment Bond, the seller has the obligation to issue the sale contract within a period of 15 days and then an additional requirement of being notified in case the investor has not executed the sale contract. More importantly, the DREI allows the investor to cancel the transaction within ten working days of receipt. In the event of such a cancellation, the investor has the right to recover all amounts paid. Currently the investor has a limited ability to negotiate the specific terms of the sale contract and is expected to execute the same on an ‘as is where is’ basis. This has resulted in a significant number of disputes.
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