Dubai to effect maximum transparency in property market

The rules and systems in Dubai’s property market are about to go through a complete overhaul.

While the most striking of the upcoming changes will be a brand new Rental Law governing individual real estate categories, Dubai is in the final stretch of classifying all of its properties and buildings in the older parts of the city. That means nearly all of Deira has been put through the scanner to see how far they are in compliance with the various types of requirements.

It would mean that instead of an entire area or neighbourhood in Dubai being assigned a uniform rating, the new classification would allow it to be broken down into ratings for individual properties and buildings within that area. For landlords, it means future challenges to ensure their rental premises meet minimum accepted standards, while for tenants it would mean greater transparency on what they are paying for. (This extends to all types of rental assets in those areas. The new classification programme applies only to the established districts of Dubai because the recently developed areas already conform to the more recent building norms.)

“This could mean rental sub-indexes for each area in future depending on how the properties are maintained or built,” said Marwan Bin Ghalita, the Real Estate Regulatory Agency (Rera) head, at a media event early last week. “Dubai’s property market is seeking maximum transparency for all stakeholders

It is in line with recent move to create a star rating system for estate agents in the emirate, each of whom have to be licensed and assigned “gold”, “silver” and “bronze” ratings. A potential investor can check out how an agent has fared in a particular year in terms of transacted properties during a year from the Dubai Land Department’s database. And then take a decision on whom he wants to deal with. The space for fly-by-night brokers to dupe investors has been tightened up considerably.

Last year, the government entity also made pre-approval stringent for overseas properties to be marketed or sold in Dubai.

And there will be the new Rental Law, something that marks a major departure from the current norms. It will mean individually crafted rules and obligations for four distinct property categories — residential, commercial, malls, and those used for educational and health care functions. This way Dubai is moving away from one set of rules seeing to the needs of all real estate types.

“Lease agreements are not only different for distinct asset classes, there is also considerable variation in intra-asset classes,” said Sameer Lakhani, Managing Director of Global Capital Partners. “This could take into account the lease duration, fitouts, grace periods, escalation clauses, etc. “This is especially true in industrial and commercial contracts.”

Whatever version the final law will take — and it is currently before the legislative committee — it will recast the equation between landlords and tenants. And it has to be said that going forward the rights of both parties in contractual agreements will be balanced.

“The current law has served its purpose and assisted in Dubai’s growth over the past years.” Said Shahram Safai, Partner at the law firm of Afridi & Angell. “However, the current law is a one-size-fits-all solution. As Dubai grows and becomes more complex, such a general law is no longer feasible.

“Shopping centre leases have very different considerations to a residential studio lease. The law also needs to treat them differently in order to be fair to both tenants and landlords. This will assist in attracting more sophisticated landlords and tenants who will be more interested in purchasing or renting.”

A unified rental contract is already in place

While Dubai works on giving the finishing touches to its new Rental Law, one crucial piece is already in effect. A new unified rental contract went into effect last month, and among other things clearly stipulates what all parties in the agreement should be required to do. And, from a tenant’s perspective, there are provisions for penalties if landlords fail to deliver on their promise ... or in the terms of the contract.

“If institutional investors like Reits (real estate investment trusts) are to become more active, they will need to know that the path to dispute resolution is straightforward and effective,” said Sameer Lakhani of Global Capital Partners. “While incorporating all the complexities is difficult, the new rental template goes a long way towards making the process more transparent.”

The Dubai Land Department is also working on regulations that would make it worthwhile for overseas Reits to invest in Dubai property

source : gulfnews