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Rera Sets New Rules to Ensure Market Stability

A spate of new rules being put into place by the real estate watchdog of Dubai Land Department to streamline the sector are aimed at calming investors fears while safeguarding developers’ interest in the backdrop of the current market turmoil, property analysts said.

The latest rule set by Rera has instructed developers and banks not to take from investors more than 20 per cent of the cost of property until the start of the construction.

“The new rule that became effective from January 1 will help calm jittery investors who have raised concern over the possibility of more project cancellations amid a crisis of confidence,” analysts pointed out.

A revision of Law No 8 which is being considered by Dubai Land Department is expected to set a fixed amount for booking new properties instead of the previous down-payment rate of five to 10 per cent of the contract value.

Rera has also taken a new position with regard to its rule on penalty for defaulters to discourage large scale exit of cash-starved investors. It has amended the earlier rule that developers can retain 30 per cent of the money invested by buyers in the event of default. But the revised rules will force property buyers who breach contracts or default on payments to forfeit 30 per cent of the sale price to the developer.

According to the amended law, the developer may also delay any payment until the property is re-sold to another buyer, the Land Department said in a statement. The new rules would apply only to new contracts.

Rera has also initiated a move to rank property developers in Dubai by financial stability and market experience under a new system to be introduced soon.

The move was aimed at reducing the number of developers and reinforce investor confidence in a sector badly hit in 2008, analysts said.

Rera has set up an 11-member Real Estate Development Trust Account Department that will supervise and monitor the construction process and ensure the escrow amounts are collected in accordance with the agreed schedule. The team will ensure that developers who have collected more than 20 per cent of the contract value from buyers to stop asking for further payments until they correlate the escrow amounts already collected to the progress of the construction. Investor confidence in off-plan projects has been dented when several developers failed to execute projects or deliver on time.

· issacjohn@khaleejtimes.com