Escrow and how it can protect you

Off-plan investors urged to take other steps to boost self-protection.

Anybody can open an escrow account, but not anybody can open an escrow account for property development in Dubai.

With Cityscape just around the corner, more people will be considering purchasing their first home or investment property, or expanding an existing investment portfolio by making an off-plan purchase.

An important feature of any off-plan purchase is escrow there are not many people who understand the concept of escrow and how this legally binding arrangement can provide protection to investors.

An escrow is a legally recognised financial instrument held by a third party (typically a bank) on behalf of two other parties (typically a buyer and a seller) who have agreed to conduct a particular transaction in accordance with certain conditions. Funds are provided by the buyer and held by the party providing the escrow service (bank) until the latter receives formal advice that certain agreed obligations of the seller have been fulfilled, upon which time, the seller can receive funds in the amount specified in the agreement.

The use of escrow accounts by Dubai developers has been mandated by law to protect buyer prepayments. This limits developers from gaining access to funds until certain construction milestones are completed.

Anybody can open an escrow account, but not anybody can open an escrow account for property development in Dubai. The developer must first be registered as a bona fide developer with the Real Estate Regulatory Agency (RERA) which involves the provision of an expansive array of documents.

RERA requires that the land subject to development should be fully paid and a title deed should be issued in the name of the owner. Where the owner of the land cannot register as a developer, RERA permits the land owner to enter into a contract with an existing registered developer to develop the project on behalf of the land owner. The property development contract, however, must be approved by the senior legal adviser of DLD to be accepted by RERA.

Only when a developer is recognised as a “registered developer” with RERA can they apply for an escrow account. When selling off-plan, the developer must ensure all proceeds of the sale of the units are deposited into the escrow account and are used solely for the construction of the project. Failure to comply with the Escrow Law can lead to hefty fines or criminal charges. Once the developer has submitted all the required documents to RERA and is granted the authority to sell units off-plan, RERA will issue an NOC to allow the developer to open an escrow account with an authorised bank.

The bank which will be providing the escrow service needs to understand all the details of the underlying agreement to ensure that it acts in accordance with the provisions. In this way, the bank can help protect the buyers’ pre-paid funds.

But while the introduction of escrow as a legal requirement for developers has helped safeguard the funds of off-plan investors, there are other steps that investors must take to provide additional self-protection.

Buyers need to make sure they are dealing with – a reputable developer regardless if the developer is registered with RERA. Ask around or seek professional guidance.

Warranties and any quality assurance policies should be discussed in detail. Have the sales and-purchase agreement reviewed by a professional to ensure you have legal recourse should any quality issues arise and make the effort to exercise your right to inspect (snag) your property and report any legitimate issues to the developer for rectification. Remember, once you have taken ownership of the property, the developer is obliged to fix any issues for 12 months following the transfer of ownership.

Ask the agent

Should I assign my property to a leasing broker or a property manager?

You enter into a leasing agreement when you wish your real estate agency to locate suitable tenants for your apartments and facilitate the signing of the tenancy agreement, leaving you to assume the responsibility of managing the tenants and all aspects of the property thereafter. A property management agreement includes more. It provides an assessment, strategy and activity plan designed to harness the financial potential of your property. Considerations include history; current market, economic and risk factors; regulations; finance; and market dynamics. An activity plan covers pricing and marketing, customer relationship and tenant management, and policy and cost management. These will be performed under a property management agreement. A good property manager will make your investment work harder for you and the returns you receive will outweigh any fees.

I wish to sell my villa, but the garden needs a little bit of work. Is it worth investing in improving the garden? Am I likely to get my money back?

For your garden to become a selling point, you need to establish a low-maintenance and functional landscape that is highly appealing to the potential buyer. Resist the temptation to clutter the landscape with every species of flora known to man. Plants grow and you need to keep that growth in check as your garden can look unkempt and create a negative impression. Ensure that all landscaping elements must be coordinated carefully. If you don’t know or understand the differing qualities of certain soils, it’s time to call your landscape gardener and have him produce an impressive garden for you. Even if you don’t plan on selling your home for another five or 10 years, now is a good time to lay the foundation for a great landscape design that will win over your future homebuyers.

I am planning to invest in Dubai. As this would be my first investment, can you give any useful tips.
First of all, know why you want to invest in property. You must have a clear understanding of what you are trying to achieve. Then you must set your financial objectives carefully. Success in property investment can only be attained when (and if) those objectives have been realised. Always think long term for your greatest success. Those who have had the greatest success possess the ability to think long term, make rational, well-researched and carefully thought-out decisions with the end objectives in mind and understand that every real estate industry globally will go through cycles of growth and contraction. Make sure you know your stuff by being able to communicate knowledgeably with the experts. Always strive to eliminate risks. Plan your finances, cash flows, capital requirements and debt levels carefully.

With many new projects and off-plan opportunities, I am nervous about the quality of end products. Can we expect an improvement in quality?

During the global financial crisis, many developers realised that properties of poor quality were dealt the harshest of value declines. As a result, many developers did not survive. Having said that, the old caveat of “buyer beware” still applies. Deal with a reputable developer. Ask around or seek professional guidance. Ask what proactive measures are taken to ensure the end product has been built to an acceptable standard. Warranties and any quality assurance policies should be discussed in detail, and have the sales and purchase agreement reviewed by a professional. Engage an expert to inspect (snag) your property and report any legitimate issues to the developer for rectification. Remember, once you have taken ownership of the apartment, the developer is still obliged to fix any issues that may arise during the full 12 months following the transfer of ownership.

Question of the Week

I am buying an off-plan property. Can you explain the principle of escrow.

An escrow can be described as a legally recognised financial instrument held by a third party (typically a bank) on behalf of two other parties (typically a buyer and a seller) who have agreed to conduct a particular transaction in accordance with certain conditions. Funds are provided by the buyer and held by the party (bank) providing the escrow service until it receives the formal advice that certain previously agreed obligations of the seller have been fulfilled upon which time, the seller can receive funds to the amount specified in the agreement between the seller and buyer.

The use of escrow accounts by Dubai developers has now been mandated by law for the purpose of protecting the prepayments made by buyers. This limits developers from gaining access to funds until certain construction milestones are completed, helping ensure developers are not misappropriating funds provided in advance for purposes other than which they are intended.

Anybody can open an escrow account, but not anybody can open one for the purposes of property development in Dubai. The developer must first be registered as a bona fide developer with RERA which involves providing documents including details of its officers and solvency, title deeds proving ownership of the land to be developed, NOC from relevant parties to performance guarantees.

Gulf News Saturday, June 10,2017
FREEHOLD

ESCROW AND HOW IT CAN PROTECT YOU

By Mohanad Alwadiya
CEO, Harbor Real Estate
Senior Advisor & Instructor, Dubai Real Estate Institute

There are not many people who understand the concept of escrow and how this legally binding arrangement can provide a substantial level of protection for investors.

In its simplest form, an escrow can be described as a legally recognised financial instrument held by a third party (typically a bank) on behalf of two other parties (typically a buyer and a seller) who have agreed to conduct a particular transaction in accordance with certain conditions. Funds are provided by the buyer and held by the party (bank) providing the escrow service until it receives the formal advice that certain previously agreed obligations of the seller have been fulfilled upon which time, the seller can receive funds to the amount specified in the agreement between the seller and buyer.

The use of escrow accounts by Dubai developers has been mandated by law for the specific purpose of protecting the prepayments made by buyers for properties that are being bought off-plan. This limits developers from gaining access to funds until certain construction milestones are completed helping to ensure developers are not misappropriating funds provided in advance for purposes other than which they are intended.

Anybody can open an escrow account but not anybody can open an escrow account for the purposes of property development in Dubai. The developer must first be registered as a bona fide developer with the Real Estate Regulatory Authority (RERA) in Dubai which involves the provision of an expansive array of documents ranging from those which establish the bona fide nature of the developer including details of its officers and solvency,  Title Deeds proving ownership of the land to be developed, No Objection Certificates (NOC) from relevant parties such as the Master Developer to performance guarantees backed by a financial institution and all planning and financial details regarding the project.

RERA requires that the land subject to development should be fully paid and a title deed should be issued in the name of the owner.  Where the owner of the land cannot register as a developer, RERA permits the land owner to enter into a property development contract with an existing registered developer to develop the project on behalf of the land owner.  The property development contract however must be approved by the senior legal adviser of DLD to be accepted by RERA.

Only when a developer is recognised as a “registered developer” with RERA can they apply to RERA to open an escrow account.  When selling off-plan, the developer must ensure all proceeds of sale of the units are deposited into the escrow account and are used solely for the purposes of construction of the project.  Failure to comply with the Escrow Law can lead to hefty fines or criminal charges which may result prison sentences being administered. Once the developer has submitted all the required documents to RERA and the developer is granted the authority to sell units off plan RERA will issue an NOC to allow the developer to open an escrow account with an authorized bank in the UAE.

Obviously, the bank which will be providing the escrow service needs to understand all the details of the underlying agreement to ensure that it acts in accordance with the provisions of that agreement. In this way, the bank can help protect the buyers pre-paid funds by referring and strictly adhering to the conditions of the underlying agreement

But while the introduction of escrow as a legal requirement for developers has helped safeguard the funds of off-plan investors, there are other steps that investors must take to provide additional self-protection.

First, buyers need to make sure you are dealing with a reputable developer, regardless if the developer is registered with RERA. Ask around or seek professional guidance, as those in the industry have a good appreciation of who the reputable developers are.

Warranties and any quality assurance policies should be discussed in detail. Have the Sales and Purchase agreement reviewed by a professional, to ensure you have legal recourse should any quality issues arise and make the effort to exercise your right to inspect (snag) your property and report any legitimate issues to the developer for rectification. Items which can be remedied in the short term should be fixed immediately and remember, once you have taken ownership of the apartment, the developer is obliged to fix any issues that may arise for a full 12 months following transfer of ownership.

Business ethics in real estate

Upholding business ethics in real estate

By Mohanad Alwadiya
CEO, Harbor Real Estate
Senior Advisor & Instructor, Dubai Real Estate Institute

While the term “business ethics” is not something alien or new to us, some people with careers outside of the real estate industry may view the term, especially in relation to real estate, with a critical eye, with some perhaps even joking about the incompatible nature of the words “business” and “ethics.”

But we all know that in real estate, a number of professions emerge including, but not limited to: commercial or residential brokerage, appraisal/valuation, property management, real estate counselling, etc. That being said, for a job to be considered a bona fide profession, it would require some commitment to a certain standard of conduct that the general public expects from the practitioner. This is where the real estate code of ethics comes in.

However, some might say: but anyone can become a realtor, so how does this seemingly “open” industry professionalize current practice and regulate the activities of real estate practitioners? What rules or structures are in place to prevent any form of abuse and/or malpractice in an industry where sometimes morally contradictory relationships or grey areas exist such as in the case of open market listings where one seller lists with various agents, and the big question is where would the realtor’s loyalty be – with the seller or the buyer? Or in the case of valuation assignments where the client may indirectly or even expressly makes known to the appraiser the outcome they are expecting.

Another dilemma confronting realtors is their reliance on commission-based remuneration whereby agents’ dependence on said commission may run counter to the best interests of the client. While a good commission structure would evidently motivate realtors to give their best efforts in order to successfully convert a lead and close a deal, the question of whether or not conditions set are for or against the best interests of their client remains – with yes being the answer in some cases, and at other times not so especially in cases of self-dealing in real estate.

Aside from By-law No. 85 “Regulating the Real Estate Brokers Register in the Emirate of Dubai” which expressly states the legal mandate governing the real estate practice, the Real Estate Regulatory Agency (RERA) and the Dubai Real Estate Institute (DREI) established a mandatory certification program for new and experienced agents who wish to work in a real estate brokerage in Dubai. The DREI also organizes license renewal courses and exams along with a very rich variety of career development programs intended to help elevate the standards of professionalism and effectiveness of brokers in Dubai.

All realtors are, therefore, expected to abide by local laws pertaining to the real estate practice as well as to government regulations that are periodically introduced and, at times, go through a series of revisions or reforms in order to address new issues or problems that crop up every once in a while.

But even in the face of such regulation, real estate firms must also take it upon themselves to continuously educate and empower their agents to make the best decisions in order to maintain individual and corporate integrity, professionalism and, ultimately, success in the real estate business.

Investing in training, whether in-house or otherwise, definitely pays a huge dividend. Extensive and tailor-made training programs should include education on the industry and pertinent rules/regulations (especially on current or new legislation), soft skills and specialized training courses that help employees attain a level of mastery in all the macro and micro aspects of their profession.

The ongoing development of the industry’s regulatory framework and implementation of laws and regulations to safeguard both consumer and investor interests, the overall industry and the economy at large from rampant and irresponsible speculative, predatory or unethical practices, all reveal a mature and balanced approach to shaping an industry which exhibits sustainable growth over the long term.

Taken altogether, the laws of the land serve as the primary push for realtors to act in a way that upholds and reflects the greater good while constant education through training, workshops, seminars and the like (whether mandatory or voluntary) help real estate practitioners internalize the values that must inherently pervade the system for the industry to thrive and continue to serve as one of the primary sectors supporting the UAE economy.

Ask the agent

Question: I have been in the UAE for a long time, and accumulated a portfolio of 17 apartments and a couple of villas located all over Dubai. Everyone knows that the market is on a slowdown so is there still a way to make any profit during this period?

There are too many investors who are under the illusion that investing in property is almost a “set and forget” proposition, but nothing could be further from the truth. The property industry is incredibly dynamic and requires constant attention as factors influencing its performance as an investment are as broad as they are complex.

Investing in property is no different to investing in any other asset. Its purpose is to create wealth but, in order to do that, it needs to be nurtured, maintained and managed just like any other investment. Ask yourself a question: Would you create a share portfolio without monitoring and managing its health and performance? Of course not, and having a property portfolio is no different.

With a portfolio this large, you need professional help to manage your property investment, particularly during times when yield is harder to generate.  It requires careful thinking about what the true earnings potential of the portfolio really is, and what is the most efficient and effective way to go about realizing that potential. You need a good property manager who will ensure that you maximize returns from your property portfolio and enable your long term portfolio strategy to be realized.

Essentially your property manager should be capable of managing your business which just so happens to be a property portfolio. Remember, it’s your investment, and you need to ensure it’s in good hands providing you with the returns you expect with as little hassle as possible.

Choose wisely as once you appoint a property manager, your ultimate return on investment is largely in his hands.

QUESTION: I have a well-maintained 1-bedroom apartment in Queue Point, Liwan. When I purchased it, the selling rate was at AED 550 per sq.ft. Should I continue to rent it out or sell it now?

Properties located in non-prime areas such as Dubailand have been doing very well even in the current market scenario. Even in the recent past, we have witnessed the more affordable properties in the market, including those in Dubailand, doing quite well in terms of significant value growth and ongoing sales activity as there remains a supply gap in the truly “affordable” property segment.

As mid to upmarket property in prime locations have become unaffordable for some homebuyers and investors, people have turned to more reasonably-priced projects like Remraam, Skycourts, Queue Point, etc., which promise capital appreciation even in the current market climate. These developments are still young, and more growth and infrastructure development is still in the offing.

There is no doubt that you would still make some profit if you sold today; however, we expect values to still improve, especially as the infrastructure and landscaping around the development gets completed. I suggest you retain the apartment for at least the next 5 years as you will continue to benefit from superior capital growth and enjoy at least 8 percent net annual rental returns in the meantime.

Question: Am I right in thinking that rental rates are not as affected by the market slowdown as sale prices? I was expecting a big reduction in my rent but our landlord told us it will remain the same.

Yes, you are partly right. The current industry climate has affected sale prices more although rents have also fallen in certain areas which only means the market slowdown has varying effects on different areas and property types. Regarding your rent, what will determine whether the landlord can raise your rent or not is how your rental levels compare with the new and updated index.

You should familiarize yourself with Law 43 which was issued on 22/12/2013 and replaced Decree # 2 of 2011. It introduced certain restrictions with regard to the calculation and implementation of legally allowable rental increases.

Having said that, it does not set out to control the rental value of new contracts and where a property is to be let for the first time or to a new tenant, it is up to the owner and prospective tenant to agree as to how much rent should be charged for the property.

However, for your peace of mind, you can compare your rental rate to the current market rate by using the RERA rental increase calculator online by visiting: http://www.dubailand.gov.ae/English/Pages/Rental-Increase-calculator.aspx

While it has its limitations, it is a useful tool that is also being used by landlords as a reference point for determining rental rates.

Question: I have just received an offer from a bank representative to refinance my property. Is this an opportunity I should avail of or not?

Very easily, I can say the answer is YES, but only if it makes financial sense! In short, you need to make some quick but careful calculations.

There are some very attractive mortgage products in the marketplace with a few mortgage providers offering rates as low as 3.99% or even 3.49% which signals that competition among UAE banks for higher market share of the mortgage market is getting pretty intense.

There are a number of things you need to consider such as, is there an early payment penalty for your current mortgage? It may well be that you will need to pay a hefty fee to exit the existing contract.

While 3.99% is an attractive rate, how long are you guaranteed this attractive rate? Interest rates will eventually rise and this eventuality needs to be understood by mortgagors as the attractive 3.99% interest rate enjoyed today will, in all probability, be replaced with a significantly higher rate in 2 years’ time, requiring increased mortgage payments to cover the interest rate hike. You need to factor this into your financial planning.

Will you need to pay any establishment fees for your new mortgage contract? With the mortgage market becoming so competitive, you should be able to have any fees waived.

Finally, make sure you can pay out your new mortgage contract at a future point in time without any penalty. This is an unnecessary expense that you should not be burdened with.

Additional:

Question: I am coming from overseas and looking to rent a home. I heard about this thing called “district cooling.” What, exactly, does it mean?

District cooling for the provision of chilled water has emerged globally as a way to provide cooling to buildings in a more environmentally sensitive way. It is considered to provide great benefits in the long run and, in addition, helps in saving on the costs of electricity which will be reflected in lower DEWA bills of tenants.

You will find that most of the units which are serviced by chilled water district cooling are offered at slightly lower rental rates. However, you should enquire as to how your cooling charges will be calculated and enquire as to all the charges which are included in the cost. You may even ask existing tenants how much they are paying currently before you commit to a tenancy contract.

With regard to consumption charges, I am assuming you will have a BTU meter installed in your future apartment? If so, you will be billed directly by the cooling services provider based upon what you actually consume in terms of cooling. The more you use, the more you pay.

Having said that, the DEWA savings will be offset somewhat as you may incur an additional utility charge as some owners of units that are equipped with chilled water district cooling will be passed on the slightly higher utility charges that they incur which involves the remuneration of the capital costs of providing the infrastructure that delivers the chilled water to the unit. This charge will, in all likelihood, be calculated as a pro-rata of the actual consumption charges.

Nevertheless, in most cases, developers have managed to offer better value for money while helping protect the environment.

 By Mohanad Alwadiya
CEO, Harbor Real Estate
Advisor & Instructor, Dubai Real Estate Institute (DREI)
Published in Freehold – Gulf News
Dated: 30 April, 2016

Reality Check

Only the strongest will survive

The number of real estate brokerages and agents who operate within them will always fluctuate in accordance with market cycles. Wherever there is opportunity, those with a desire to capitalise will readily set up operations.

This phenomenon is not unique to the real estate industry and will occur any where there is economic opportunity coupled with relatively low capital requirements to start a business, where the skill set is not perceived as being particularly specialised or rare, and where there are minimal legal, political or policy barriers to launch a commercial enterprise.

However, in any industry, especially those yet to fully mature and develop such as Dubai’s real estate, there exists a natural process that essentially eliminates the weakest entities. Competition is fierce and only those that compete by applying experience, knowledge, skills, adaptive capabilities and business acumen will survive.

Put simply, as a market or industry matures, only the strongest survive. The cyclical nature of the industry facilitates this process by testing who can best capitalise on the opportunities in a growth market and who can best sustain operations in a contractional cycle.

So the fact that some brokerages are closing their doors is inevitable as the industry continues to mature, and the well-chronicled phase of correction the Dubai market is experiencing has played a natural role in eliminating the weakest players that cannot compete.

It is actually healthy for the industry as Dubai has too many brokerages. At the time of writing, there were 2,389 brokerages registered with Dubai Land Department. This is simply too many for the industry to support during the inevitable contraction or low growth periods. And one of the key drivers of industry maturation is to have fewer, but higher quality, brokerages and agents.

The levels of professionalism, quality and customer service in the industry still require a lot of attention. While good progress has been made by the Dubai Real Estate Institute (DREI) towards elevating the standard of real estate practitioners, too many poor performers remain, effectively hindering the development of the industry into the efficient and transparent marketplace we all desire.

Obviously, progress will require the continuance of the good work already done by DREI and Real Estate Regulatory Agency (RERA), but improvements cannot be achieved by these industry bodies alone. All participants need to embrace the idea that a sector that is comprised of a body of professionals who are knowledgeable, conversant, proficient, ethical and highly motivated will play a significant role in providing sustainable and profitable growth over the long term.

Put simply, the more efficiently and effectively an industry operates, the greater the rewards will be for all. This requires better people, not necessarily more people. As industry leaders, it’s up to all of us to make it happen.

Unfortunately, to introduce a “foolproof” system is always very difficult, but there are some common sense steps that every consumer must take.

First, it is always essential to determine the brokerage is registered with the Dubai Land Department. If not, walk away immediately.

In addition, careful investigation as to the reputation, online presence and market visibility of the company should be undertaken along with a meeting at the company offices to get a feel of its size, resources and stability. In addition, ensure that any individual brokers you deal with are registered and ask for proof of identification.

Only when you are 100 per cent sure that the company looks safe, solid and trustworthy should you consider handing over any monies that may be vulnerable to misappropriation. Ensure you get a written receipt.

In some circumstances, usually where large transactions are being conducted, funds advanced may be held by third-parties such a lawyer or bank in a form of an escrow arrangement. This can help ensure that funds provided are only released when certain conditions are met, making it much harder for any party to misappropriate the funds. With the resurgent real estate market of the past three years, there has been a sharp increase in the number of brokers. However the rate of growth was highest in the first two years, slowing significantly in 2014 and now showing signs of decline. This is due to many factors including the tougher guidelines and policies that are being introduced by RERA.

There are stricter requirements due for introduction by Dubai Land Department as well. For example, the pass percentage for brokers taking the mandatory exam to renew their licenses has been increased to 85 per cent from the current 75 per cent. Emirates IDs will replace broker ID cards as part of a new smart system allowing all the details regarding an individual agent to be monitored, including when they change employers. This will ensure that only licensed brokers operate in the market. Any broker who does not officially record any transaction for six months will be warned and if no improvement is apparent within one year will be deregistered.

In addition, new brokerage firms in Dubai will be restricted from employing more than four agents. If the agency can demonstrate good performance over the first year, an additional broker can be hired.

The quest for improvement is never-ending and regulatory frameworks should always be enhanced, updated and improved to ensure the industry operates as efficiently, effectively and equitably as possible.

mohanad_propertyweekly

Property Weekly

Escrow law protection

With the recent flurry of new developments in Dubai, investors and potential owner-occupiers have been asking me how much protection is provided for the funds they are paying developers in advance. The conversation invariably turns to the concept of escrow and how this legally binding arrangement provides substantial protection for investors.

In its simplest form, an escrow can be described as a legally recognised financial instrument held by a third party (typically a bank) on behalf of two other parties (typically a buyer and a seller) who have agreed to conduct a particular transaction in accordance with certain conditions. Funds are provided by the buyer and held by the party (bank) providing the escrow service until it receives formal advice that certain previously agreed obligations of the seller have been fulfilled, upon which time the seller can receive an amount specified in the agreement between the seller and buyer.

The use of escrow accounts by Dubai developers has now been mandated by law for the specific purpose of protecting the prepayments made by buyers for properties that are bought off-plan. This limits developers from gaining access to funds until certain construction milestones are completed, helping ensure developers are not misappropriating funds provided in advance for purposes other than which they are intended for.

Anybody can open an escrow account but a developer must first be registered with the Real Estate Regulatory Agency (Rera), which involves providing an expansive array of documents, ranging from details of its officers and solvency, title deeds proving ownership of the land to be developed, and no-objection certificates (NOCs) from relevant parties such as the master developer, to performance guarantees backed by a financial institution and all planning and details about the project.

Rera requires the land subject to development to be fully paid for and a title deed issued in the name of the owner. Where the owner of the land cannot register as a developer, Rera permits the owner to enter into a property development contract with an existing registered developer to develop the project on behalf of the land owner. The development contract, however, must be approved by the senior legal adviser of the Dubai Land Department to be accepted by Rera. Only when a developer is registered with Rera can it apply to open an escrow account. When selling off-plan, the developer must ensure all proceeds of the sale of the units are deposited into the escrow account and are used solely for the construction of the project. Failure to comply with the escrow law can lead to hefty fines or criminal charges, which may result in prison sentences.

Once a developer has submitted all the required documents to Rera and is granted the authority to sell units off-plan, Rera will issue an NOC to allow the developer to open an escrow account with an authorised UAE bank.

The bank that will be providing the escrow service needs to understand all the details of the underlying agreement to ensure that it acts in accordance with its provisions. In this way, the bank can help protect the buyers’ prepaid funds by referring and strictly adhering to the conditions of the agreement.

But while the introduction of escrow as a legal requirement for developers has helped safeguard the funds of off-plan investors, there are other steps that investors must take to provide additional protection.

Buyers need to make sure they are dealing with a reputable developer, regardless if it is registered with Rera. One positive effect of the global financial crisis was that many suspect developers were exposed and forced out of business. Seek professional guidance, as those in the industry know who the reputable developers are. Ask the opinion of those who have transacted business with the developer.

Ask the developer what measures have been taken to ensure the end product is built to an acceptable standard and inspect buildings already completed by the developer. Warranties and quality assurance policies should be discussed in detail. Have the sales and purchase agreement reviewed by a professional to ensure you have legal recourse should any quality issues arise.

Upon completion you have the right to inspect your apartment and report any legitimate issues to the developer for rectification. Items that can be remedied in the short term should be fixed immediately. Remember: once you have taken possession of the apartment, the developer is obliged to fix any issues that would arise 12 months following the transfer of ownership.

Rera’s colour-coded norms will not impact agent commissions

Article from Emirates Business 24-7

Article from Emirates Business 24-7

Agent commissions will not be impacted under the colour-coded system introduced by Dubai’s Real Estate Regulatory Agency (Rera) whereby brokers are authorised to sell a particular type of property in a specified area, according to realtors.

Natasha Pereira, Area Manager-Dubai, Sherwoods Property Consultants, said: “Areas such as Discovery Gardens, International City and Dubai Silicon Oasis generate lesser revenue than others. For agents who have been assigned these areas, we also give them (parts of) other areas to handle the sales and rentals as well.”

She added: “Our agents are already classified into specific areas and asset classes.” While some real estate consultancies said they were already segregating the functions of a real estate agent based on specific areas and asset classes, others felt now was not an opportune time to introduce the colour-coded system.

Avais Najam, Managing Director, Venture Horizon Real Estate, said: “There is already an oversupply of real estate brokers in the market since business activity is yet to pick up in Dubai. Further, most brokerage firms continue to employ real estate agents on a commission-only basis, rather than enrolling them in their companies.” He added many brokerage firms and agents were unaware of rules that require a colour-coded system and have sought more clarity on the system’s implementation from Rera.

Najam said: “We are already segregating our real estate agents on the basis of the territories they work in. Most of our agents follow a specific territory.”

Mohanad Alwadiya, Managing Director, Harbor Real Estate, said: “At the moment we are not ready for renewals of our agents. However, we have been following our own policies similar to that set out by Rera. All our agents follow the system. For example, for handling Dubai Media City, Internet City and Tecom areas, we have one designated person since these are all free zone areas. We also have a specific division that specialises in office space.”

In September, Rera announced the four-tier broker classification system whereby brokers were granted one of four types of licences authorising them to sell property of a particular type or in a specified area.

Under the new colour-coded classification, tier one brokers, those issued a blue licence by the Department of Economic Development (DED) and registered with Rera, will be allowed to carry out all types of brokerage activities and operate throughout the emirate, including free zones if authorised to do so by the authority. These have the widest sphere of operation.

Tier two or yellow licences will be issued by the appropriate free-zone authorities to carry out the full range of brokerage activities but will be registered to operate only within “designated” freehold areas owned by that authority. The tier three registered brokers, having green licences, will be authorised by the DED and registered by Rera, to sell only properties of specific companies or developers. The last tier of licenced brokers will be issued a red licence to promote, sell or rent time-share units.

This move by Rera is a step towards regulating professional services in the sector and enhancing rights of buyers, sellers and tenants. The agents also called for the “Agent Trust Account” to be put in place at the earliest to help further regulate the brokerage industry.

Broker firms in Dubai current employ legal firms to oversee some transactions into the account and help them manage accounts in cases where deposits may have been taken by the agent from the customer.

Najam said: “For us, all the commission earnings go into an account and in cases where we receive a deposit, we take on a solicitor to safeguard the client’s deposit money and see to it that it is secured and the transaction made is accurate.

“We sometimes take a deposit of about five per cent to 10 per cent to lock in a client. The deposit money can either be in cash or cheque. In such a scenario, we usually have a solicitor on board to ensure the transaction is valid.”

According to Alwadiya, Harbor Real Estate has hired a professional legal firm to audit its transactions.

Realty brokers get new professional status

Article from Emirates Business 24-7

Article from Emirates Business 24-7

Dubai’s Real Estate Regulatory Agency (Rera) yesterday announced an agreement with the Ministry of Labour (MoL) to have real estate brokers recognised as a new professional category.

Labour cards and residence visas issued to real estate brokers will now include their designation and henceforth not be categorised as “sales staff”.

Marwan bin Ghalita, Chief Executive Officer, Rera, said: “This is the first step towards a complete classification of real estate professions in Dubai.

“The practical objective is to make sure each real estate professional’s designation reflects what he does so buyers and sellers are clear that they are dealing with properly qualified, competent, licensed and registered professionals.”

He said: “The overall effect will be to increase transparency and professionalism across the sector. This in turn will boost confidence in property dealings and in the networks agents and third-party investors depend on to execute their transactions.

“Previously, there were no officially-recognised categories for real estate professionals and none was recognised by the ministry. Rera, as the custodian of these professional services, took the initiative and approached the MoL.”

“The ministry has now approved the first step of officially recognising broker as a professional category and this will be included in all the related professional and operations documents,” said bin Ghalita. “So when firms come to renew their registration and labour permits these will be issued with the new designation.”

Effectively, this step completes the three-stage formal approvals procedure of registration, licensing and now labour permit and residence visa to support the professional qualifications and training of real estate practitioners in Dubai. This compulsory system will take Rera’s campaign to outlaw “rogue practitioners” to its conclusion.

Rera has, as part of its agreement with the MoL, set up an electronic link direct to the ministry, which will allow the exchange of information to speed up processing of labour permits.

Humaid Al Rashid, Head of the Labour Affairs Department in the MoL, said: “We were only too happy to co-operate with Rera and to support it in its aims.”

Mohanad Alwadiya, Managing Director, Harbor Real Estate, said: “While the efforts to protect rights, lift standards of professionalism and establish a transparent framework are to be applauded in Dubai, there is still a long way to go before the industry can be said to be in the final stages of maturation.

“The new agreement between Rera and the Ministry of Labour to have real estate brokers officially recognised as a separate professional category is a step on the right direction.”

Hiba Jaber, Chief Operating Officer, Landmark Properties, said: “We support this initiative as introduced by Rera and MoL. We firmly believe that once professionals are properly categorised in accordance with their qualifications and credentials, investors and end-users will have a clear direction on who to contact when seeking help and advice from the professionals.”

Partho Bhattacharya, Director of HR, Better Homes, said: “This is a good step in the right direction where real estate agents will get recognition as professionals. The MoL must recognise the Rera certificate to grant a work permit. Such real estate professionals should not be asked for any other educational certificate for grant of work permit.”

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New property laws help turn Dubai into global destination

Article from Emirates Business 24-7

Article from Emirates Business 24-7

Laws and regulations introduced under the directives of His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, have transformed the emirate into a more mature market and global real estate destination.

“The vision and leadership of Sheikh Mohammed has positioned Dubai as a global city and one of the most renowned business hubs in a record time. His Highness focused on attracting international investors and building a world-class infrastructure which made Dubai, as we know it today, the location of choice for residents, businesses and visitors,” said Mohanad Alwadiya, Managing Director, Harbor Real Estate.

When it comes to real estate, Dubai set a new global benchmark and has introduced iconic projects to the world that covered all kinds of asset types and interests including the Dubai Media City, Dubai Internet City, Knowledge Village, Burj Al Arab, Emirates Towers, Dubai Marina, Business Bay, Dubai Festival City, Dubai Silicon Oasis, Downtown Burj Dubai, Emirates Living, Dubai International Financial Centre (DIFC), Burj Dubai and the Palm Trilogy.

Sheikh Mohammed’s vision did not start with the real estate developments, he ensured establishing the suitable infrastructure to support the real estate boom and its sustainability. The development of the Dubai Ports Authority, the introduction of Roads and Transport Authority (RTA) and industrial and specialised business zones have contributed to setting Dubai up to become one of the main trading, tourism and culturally rich cities of the world, he added.

Dubai, under Sheikh Mohammed, became the first city in the Gulf Co-operation Council to introduce a real estate regulatory body under the auspices of the Land Department.

The Land Department has continuously strived to keep up with the development and prosperity of the emirate. Through the leadership of Sheikh Mohammed, who always strives to be the best and definitely world-class in everything he plans, guiding with an extraordinary skill, passion and intelligence, the “vision of Dubai” has become the world’s most incredible reality and yet still, there is even more to come.

Supported by Sheikh Mohammed, the Land Department is planning and implementing services to participate towards making Dubai the leading city of the world, the Department said on its website.

The Government of Dubai instituted new rules, regulations and laws in the emirate to regulate the market, to protect the rights and interests of consumers, and to ensure Dubai property investors are assured the highest possible service standards from real estate agents, brokers and property developers transacting business in Dubai and maintain the integrity of all the developments.

The Department launched a number of laws and regulations that regulate the property sector. Starting with Law No7 concerning land registration in Dubai, Law No3 concerning areas of properties that can be owned by non-UAE nationals in Dubai, Law No8 concerning property trust account in Dubai, Law No 85 concerning real ease agent regulation and the upcoming strata law.

Alwadiya said: “The young Dubai property market has come a long way with regards to regulating the real estate industry. While the efforts to protect rights, lift standards of professionalism and establish a transparent, credible and functional framework are to be applauded, there is still a long way to go before the industry can be said to be in the final stages of maturation.

“Over the past years, the government has adopted numerous legislations and regulations to protect everyone in the real estate sector, and most importantly establish a safe environment for investors. Dubai has proven to be the world’s greatest improver in terms of real estate transparency over the past two years. With the establishment of regulatory bodies such as Rera, investor representative bodies, the establishment of codes of practice for real estate practitioners combined with laws relating to freehold ownership, escrow accounts and strata titling, Dubai has reduced drastically the concerns of expatriate and foreign investors,” he added.

Transparency has also been given a boost with the introduction of the credit information law, a positive step towards transparency and risk mitigation for banks. The law will create a framework of rights and obligations for data providers, information users and individuals alike, Alwadiya said.
Saeed Mirsaeedi, Investment Manager of Sherwoods Real Estate, said: “Introduction of new laws has been a positive development and has helped Dubai’s emergence as a mature and prosperous economy.

“Clear-cut regulations and increasing transparency make Dubai property most attractive to overseas investors,” he said.
Although previously non-Gulf Co-operation Council expatriates were only permitted to rent property, or own property on a 99-year leasehold basis, all changed in 2002 when the Dubai Government took the initiative and permitted the ownership of freehold property to expatriates. This bold initiative changed the perception of the real estate industry in the Middle East and the Gulf.

The Dubai Government began the promotion in 1997 by setting up Emaar Properties. The next year, Emaar began work on Dubai Marina followed by the Emirates Living Community developments such as the Springs, the Meadows, Emirates Hills, etc. However, the major property boom in Dubai occurred in May 2002, when Sheikh Mohammed issued a decree to allow foreigners to buy and own freehold property in selected areas of the city, now referred to as New Dubai.
On March 14, 2006, Dubai’s Government issued a law legalising foreign ownership of properties in designated areas of Dubai.

“It was the adoption of freehold tenure in general, and foreign ownership in particular, that sparked the great real estate boom in the Dubai property market,” said Alwadiya.

The introduction of the freehold law by the Ruler transformed Dubai into a true success story capturing the imagination and admiration of countries worldwide. Many countries followed the Dubai model and benefited greatly from its visionary experience.

Dubai has developed several iconic real estate projects, which have acquired international recognition, marketing the emirate as a destination of choice for business and travel and for investment in real estate.

The Palm trilogy and other iconic projects such as The World have put Dubai in international limelight. Furthermore, prospective developments of creative concepts, which are likely to attract significant visitors in the coming years, continue to take shape. Burj Dubai, the tallest tower in the world, will be opens today. Although Dubai International Financial Centre formally opened as a global financial centre in 2004 with the aim to become the global hub for financial services in the Middle East, it has also emerged as one of the most expensive addresses for real estate in the emirate.

In fact, property prices on residential units in the DIFC are becoming increasingly comparable with the leading capitals of the world. Dubai’s real estate industry dynamics are firmly entrenched in Dubai Strategic Plan, which strives to achieve a medium-long term objective of diversifying the economic base of the emirate in key growth areas, which have been defined as priority sectors within the associated blue print. Of particular significance is the focus of the plan on the real estate development and the construction sector, as well as travel and tourism, with the former providing necessary infrastructure for growth of all other businesses, and the latter ensuring sustained economic buoyancy through continuous and aggressive growth in visitors to the emirate.

The investor-friendly business environment in Dubai has promoted not only businesses but also a demand for office space, and the high real incomes have ensured that the labour force is increasingly imported from abroad, thus catalysing requirements for housing and retail.

Iconic projects

Dubai has introduced some of the most iconic destinations that cater for different lifestyles and asset categories. Some of them in the business and commerce segment are the DIFC, Business Bay, Dubai Internet City, Dubai Media City, Knowledge Village, Dubai Silicon Oasis, Dubai Maritime City, Tecom, Jebel Ali Free Zone and Dubai Healthcare City.

In entertainment, lifestyle and culture segment falls the Dubai Festival City, Downtown Burj Dubai, Emirates Living, Dubai Mall, Ibn Battuta Mall, Palm Jumeirah, Burj Dubai and Dubai Marina.

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