New rules for property purchasers
A NEW regulation has recently been passed in Dubai that affects property purchasers' rights to claim refunds from developers when a sale falls through, but what exactly does it mean?
Since the downturn, the Dubai property market has suffered from an unusual stalemate situation. In many cases, developers have either halted or delayed progress of construction and are unable to proceed with projects that are not economically viable.
At the same time, purchasers have either lost faith in their investment and are not willing to make further instalment payments to developers, or are simply not in a position to meet purchase price instalment payments.
The new ruling aims to create a balanced and fair mechanism for the termination of sale and purchase agreements (SPAs) for off-plan units.
The vast majority of SPAs are vague, unfair or both and it was considered essential to intervene to provide certainty in the market.
However, so far the new regulation has been criticised as being too developer friendly as it allows the developer to control the termination process, not the purchaser. That said it is considered an important step towards recovery in the property market.
It applies retrospectively to all SPAs signed prior to the date the rule came into force – in April last year.
Here, cashy looks at what it means:
What will I get back?
The ruling governs the damages payable to the developer and any refund that a purchaser might be entitled to, if a sale falls through.
Under the new regulation, damages depend on what stage the construction project has reached.
If the developer has completed 80% of the construction, the purchases forfeits 100% of any money paid to date. If there is a shortfall between that and the purchase price, the developer is able to sell the property and retain 40% of the purchase price.
If the project is 60% complete, the purchaser forfeits 40% of the purchase price. If it’s less than 60% complete, the buyer forfeits 25% of the purchase price.
In cases where the developer has not started construction, the buyer forfeits 30% of all money paid to date. Buyers get a full refund of all money paid in cases where the Real Estate Regulatory Authority (RERA) cancels the developer's project.
Will my project be cancelled?
More than 200 projects are believed to have been cancelled and many more are expected to follow suit.
RERA will play a significant part in the implementation of the new rules, as it is tasked with the role of independently assessing each project and deciding which will be cancelled.
The rules set out extensive grounds for cancellation of a project, which RERA can rely on.
What's the procedure?
The new rule also defines a procedure for the termination of SPAs. Terminations can either be served through the Dubai Land Department or by the developer directly to the purchaser (with a copy being submitted to the Dubai Land Department).
The purchaser shall be given 30 days to rectify a breach of contract.
The Dubai Land Department can also offer a mediation service to the parties in order resolve the dispute, but it's not yet clear whether mediation will be a mandatory requirement.
The much-anticipated new regulation should pave the way for a swift resolution to property disputes.
The most important factor will be consistency in the application of the law by the Property Court section of the Dubai Courts.
There is a backlog of hundreds of property cases which are pending a decision by the Property Court.
It is expected that the Dubai Land Department will also actively manage disputes between developers and purchasers in order to reduce the number of cases submitted to the Property Court.
Pic credit: Adam Hickmott/ FreeDigitalPhotos.net
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