The UAE government has long been active in setting laws and regulations to improve the transparency of its real estate market and ensure long-term growth. Since the global financial crisis began, these attempts were further amplified by issuing new laws, intervening in the market by controlling future supply and by injecting liquidity into the banking sector to promote lending. “Every strong government provides its market with an ability to bounce back in difficult times and the UAE has shown over the last four decades its resilience and ambition in making [the country] one of the most buoyant economies in the world,” said Hayan Merchant, CEO of Ruwaad Holdings LLC.
On November 9, 2008, Dubai’s government formed a high- level committee consisting of a few private developers and Dubai-based master developers, including Emaar Properties, Nakheel and Dubai Properties, who jointly control around 70% of the property supply in Dubai. The committee aims to tackle the impact of the current financial crisis on the UAE’s real estate market, while looking into various options to restore confidence. Additionally, it was announced that no new projects can be launched without the committee’s approval, however, none of the already- launched projects will be called off.
The global financial crisis has hit the banking sector and rippled into the UAE real estate market. Some banks and mortgage lenders have considerably cut down or even stopped their real estate lending. For example, Amlak suspended new mortgage loans and NBD stopped lending to expat employees of real estate firms, fearing loan defaults. In response, the government in October began injecting $19 billion into UAE banks to overcome this liquidity squeeze. Additionally, the central bank has set up around $13.5 billion in an emergency credit fund for homeowners, investors and developers. It has also discussed proposals for introducing financial instruments to boost liquidity and insure the continuity of real estate loans.
Reforms of the real estate sector’s regulations started in July 2007, when a Real Estate Regulatory Authority (RERA) was established in Dubai to set policies and to create awareness of rights and responsibilities in the property sector.
The Strata Law was issued and came into effect on March 31, 2008. It defines the responsibility of property owners and developers in the management of common areas in multi- owner developments, like gated communities and apartment buildings.
The interim registration law came into effect on August 31, decreeing that any ownership change of off-plan properties in Dubai will be invalid if not registered in RERA’s Interim Register, with all registered sales transferred to the Land Department Register. Additionally, transactions made before the law came into effect will not be exempted, as they were to have been registered within 60 days of the law enactment. “While this may cause a slowdown for off-plan buying, it will be very beneficial in the long term to stabilize the market and put off flippers and speculators,” said Mohamed Al Zarah, CEO of Great Properties.
Moreover, the new Dubai Property Court was established in September. It is expected to reduce the workload of RERA, which since its establishment has been swamped by property cases, including for project delays and noncompliance with a property developer’s initial description.
The new mortgage law, which came into effect on October 30, states that mortgages will not be valid if they are not registered at the Dubai Land Department or the new Interim Real Estate Register, and it includes all procedures concerning a mortgage and its legal effects on stakeholders. Additionally, it includes execution procedures for the mortgaged property and proper conduct between the bank and the borrower.
Abu Dhabi is following suit by finalizing a new law to regulate its property market and to put an end to dangerous speculation. Also, there are plans in the Emirates’ capital to introduce similar real estate laws that Dubai has earlier issued — like the strata, broker and escrow laws — in order to assure investors that they are investing in a safe environment with a solid legal structure.
“Thanks to measures taken by the authorities and the initial strength of the market, I firmly believe that the UAE will overcome this crisis,” said Jean Pierre Nammour, managing director of Al Nahda Real Estate. With these regulations, the UAE in general and Dubai in specific, are trying to move from a speculative to a more mature property market, without facing a sharp real estate crash. Though progress has been made, the road is yet long: new laws are being drafted, such as the ‘company law,’ the new banking credit law and a new foreign investment law, to further improve the investment environment in the country.