Saturday, July 28, 2007

New Property Law to boost institutional investments

Developers and Analysts in Dubai are of the opinion that Dubai real estate could witness more institutional investment, due to the regulation issued by the government regarding safeguarding the payments of property buyers.

As per the regulation, published recently in the Official Gazette, the payment installments for off plan property will be paid into escrow accounts (also called guarantee accounts or trust accounts), which are authorized by the Dubai Land Department, along with an approved bank. The capital in the account will be released to the developer only when the construction milestones are met.

Prior to the issuance of this law, the investors money was unfettered. In the opinion of Tom O'Grady, a real estate partner at the Dubai office of global legal services, the regulation would prompt institutional investors such as insurance companies, banks and fund managers to invest huge sums into the Dubai property sector. He mentioned that the increase in the number of institutions entering the market, by itself, strongly indicates their growing confidence. And as far as Dubai is concerned, this could be another step forward in the right direction.

In fact, an article in the law states that a percentage of the project value should be retained in the escrow account for a year after the registration of all units. O'Grady mentioned that this will surely boost investor confidence, as end users could be confident about the quality of their property and they will have a hold over the developer in case any rectification of structural problems is required.

The President and CEO of Omniyat Holdings, Mehdi Amjad, mentioned that the law could potentially alter the investors profile in the Dubai property sector, and the realty market will witness a new flow of overseas investors with a very different demographic profile, in comparison to the investors who have been currently investing in the Dubai property sector from the time the property market was open to foreigners. Amjad mentioned that institutional investors, until now, were hesitant to invest in off-plan developments due the lack of security of their investments.

Even the developers seem to have spoken favoring the law, despite the fact that escrow accounts would restrict the developers’ access to any off-plan payments, leading to possible cash flow problems.

Sanjeet Joher, the COO of KM Holding, said "Such legislation is required for protecting the legitimate developers and consumers. This will help the Dubai real estate market and will leave a positive impact on the economy."

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