How safe are property investors in the UAE?

Things certainly came to a head after the exuberant days of the UAE property boom.

The real estate rush and subsequent crash resulted in hundreds of projects being delayed and cancelled – causing pain for both individual investors and construction firms, writes Ben Flanagan.

Authorities in both Dubai and Abu Dhabi have taken measures to ensure that investors are now better protected. But many investors are still out of pocket as some long-overdue projects are not officially ‘cancelled’, or courts are yet to decide on the liquidation of developer assets.

So how safe are new property investors now? It’s a vital question given that property prices in Dubai are falling and Abu Dhabi’s market has slowed – with fears that low oil prices could push prices down further and slow delivery of new developments.

Q&A Benchmark has the answers for your questions about UAE property disputes

Q: How many projects have been cancelled or delayed in total?

Hundreds. The Dubai Courts started publishing official lists of cancelled property projects in summer 2014; its latest publication, as of mid-March, shows 255 cancelled projects. There is a queue of cases of cancelled projects yet to be heard by the courts; only a handful have been liquidated and the funds distributed among investors.

 Q: Which properties have been cancelled?

Too many to mention here. The Dubai Courts website lists some colourful schemes, announced with great fanfare in the boom years but now cancelled. These include the Rotating Residence, by High Rise Properties, which was to be a Dh250 million 16-storey freehold rotating tower due for completion in 2008. Another on the list includes V-Greece on the World, a development of 65 luxury homes that was to be built on Dubai’s manmade archipelago.

Q: How can investors get their money back?

In 2013, a special legal committee to oversee the liquidation of cancelled property projects was launched in Dubai. The committee is tasked with the settlement of disputes between property developers and investors over projects that have been officially cancelled by the Real Estate Regulatory Agency (Rera). But there is no specific time period for a judgment to be passed by the courts – and certainly no guarantee over how much money investors would get back, as that would depend on the developer’s assets. Some property investors have found themselves in limbo in cases where a project has not been officially cancelled by Rera. Some developers have insisted projects are still going ahead, despite being greatly delayed.

Q: What kind of protection is there in Abu Dhabi?

New property law came into force in the UAE capital on January 1st that is likely to have a positive impact in protecting residential real estate buyers. The new law tasks Abu Dhabi’s Department of Municipal Affairs (DMA) with regulating the real estate sector in a similar way that Rera does in Dubai. This will include issuing licences and cancelling real estate projects when necessary. Importantly for property buyers, the law mandates that developers set up escrow accounts when selling property off-plan, so buyers’ funds are better protected. Developers will only be able to access these funds in stages, and will have to self-finance the first 20 percent of construction works. And crucially, developers will now be subject to fines if projects are delayed beyond six months – with the funds raised used to compensate purchasers.

Q: What’s the trend with corporate disputes over construction projects, such as between developers and contractors?

The construction disputes were largely related to projects undertaken in 2008 and 2009 – but the claims were initiated later due to more money being made available for legal fees. “The Middle East construction market is back in full swing and contractors and employers are seeing more liquidity in the market. With this though those parties that parked their losses now have the funds to pursue those claims that were parked,” said Edward McCluskey, head of alternative dispute resolution for the Middle East at Arcadis, in a statement when the report was issued. The most common causes of construction disputes in the region relate to the administration of contracts, according to Arcadis. The transportation sector saw the most disputes arise in 2014, followed by social infrastructure and real estate.

Q: Why the increase?

The construction disputes were largely related to projects undertaken in 2008 and 2009 – but the claims were initiated later due to more money being made available for legal fees. “The Middle East construction market is back in full swing and contractors and employers are seeing more liquidity in the market. With this though those parties that parked their losses now have the funds to pursue those claims that were parked,” said Edward McCluskey, head of alternative dispute resolution for the Middle East at Arcadis, in a statement when the report was issued. The most common causes of construction disputes in the region relate to the administration of contracts, according to Arcadis. The transportation sector saw the most disputes arise in 2014, followed by social infrastructure and real estate.

Q: How do Middle East construction disputes compare globally?

The Middle East region has the second-highest value of corporate construction disputes globally, Arcadis found. Construction dispute values for 2014 were the highest in Asia, at $85.6 million. In North America and the UK, dispute values dipped to $29.6 million and $27 million respectively in 2014. The average time taken to resolve disputes in the Middle East rose to 15.1 months, longer than the global average of 13.2, Arcadis said.

Q: How do developer’s contractual disputes hit property investors?

According to JLL’s ‘2016 Top Trends for UAE Real Estate’, construction disputes are one of the key factors behind projects being delayed. “A by-product of the slowing market conditions in 2016 is likely to be a continuation of the trend of project delays,” the advisory firm said. “Project delays will be attributed to a number of reasons, including financing issues, contractual disputes, construction delays and licensing/approval delays, while some developers will deliberately hold back completions to avoid flooding the market.” JLL estimates that only 30 percent of proposed UAE residential projects and 45% of proposed office space is completing on schedule. But the firm said that this is actually healthy for the country’s property market. “This will represent something of a ‘blessing in disguise’ and will help stabilise the market and avoid excessive oversupply,” it said.

The Rotating Residence, one of the cancelled Dubai property projects.jpg

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