Law 13 offers protection for Dubai investors

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As the fallout in the Dubai property market continues to gather pace with developers and purchasers both experiencing financial hardship it seems that a relatively unknown law may well come to the aid of troubled investors. The law in question is Law 13 article 11 the main points of which are:-

Article (11)

1. In the event that the purchaser defaults on any term of the contract he made with the developer for the sale of the Real Estate Unit, the developer should notify the Department accordingly and the Department will then give the purchaser 30 days notice to fulfill his contractual obligations, by hand,
registered post or email.

2. If at the end of the period referred to in item 1 of this Article the purchaser has not fulfilled his contractual obligations, the developer may cancel the contract and repay the purchaser his money less a deduction that does not exceed 30% of the monies paid by the purchaser.”

So what does this mean for investors who have grievances against property developers?

While we have not seen any evidence of the law being used by investors to date it would appear that where an investor has a problem with a property developer, whether this be delays or other changes to the agreed structure of the investment, there would appear to be a new option open with regards to future stage payments.

While the onus would be on the developer to report any investor who had failed to deliver agreed payments on time in reality there will be very few other opportunities open to the developer to release the investment from the initial contract. The wording of Law 13 would seem to indicate that recourse to court is not an option in the event of a dispute between investors and property developers something which may well assist some investors who have no real issues with the developer but may well not be able to afford to cover the investment in full. While this is not why the law was introduced, in the current economic environment it seems inevitable that some investors may use and abuse this potential escape.

Property developers

If the law is used for its real purpose it could well act as a serious incentive for some of the more rogue elements of the property development market to ensure that they deliver on time and within budget. The fact is that without future income these developers will literally collapse overnight so law 13 could act as a serious incentive to get their house in order.

On the other hand there is also the potential for property developers to use and abuse the new law by potentially pushing up costs, instigating deliberate delays and other measures to make life difficult for original investors. In the event that the value of the property/development had increased in the meantime they would then be able to retain up to 30% of funds paid so far by the investor then simply place the development back on the market at a higher price.

General state of the Dubai property market

As we have covered in detail on numerous occasions the once “risk free” Dubai property market has come under serious pressure over the last few weeks where slowly but surely the domino effect which has seen numerous economies throughout the world collapse gets closer and closer to the once immune Middle East market. We are now seeing banks in Dubai limiting the finance which is available to property investors and the government has taken a serious hold of the issue, intent on ensuring it does not grow into a full-blown downturn and the obvious impact this would have on the economy.

The short-term shakeout has seen many speculative investors dump their assets on the market and literally run for the hills, something which has had a massive impact upon prices elsewhere in the market. We are seeing many investors showing concern at the short to medium term outlook for the market something which is beginning to have a major impact upon property developers tied to long-term projects which ultimately in the current market may struggle to attract buyers.

Overseas investors

Many overseas property investors had recently flocked to the Dubai market under the impression that the mass of oil income and ongoing prosperity in the region would ensure that the economy remained relatively untouched by worldwide concerns. However the buffer between struggling economies and the Dubai economy has disappeared of a late with Eastern European countries literally falling on a daily basis and in need of massive rescue packages from the International Monetary Fund.

Now, at the first sign of trouble in the Dubai market many overseas investors are withdrawing their funds from the region in order to at least given themselves some funds to invest as and when the worldwide economy starts to pick up. For many who are tied into current property developments Law 13 (as covered above) could offer something of a useful escape route for those unable to fulfil their financial obligations, even though this is not what Law 13 was introduced for.

Local investors

Both local investors and the local economy of Dubai have benefited greatly from overseas interest in the region and the billions of dollars which have flowed through over the last few years. As this enormous overseas investment starts to shrink, with much of the funding repatriated to investor’s home nations, there will be and has been an impact upon the wealth of those local to Dubai.

Conclusion

While Law 13 offers a very interesting potential exit route for those who have experienced difficulties with their property developer there are real concerns that it well be abused by parties who have no real grievance against their property developer and maybe just cannot afford to fulfil their own financial obligations. This would be a great shame and potentially put the law at risk in the future but in the current economic climate investors are literally fighting for their future lives in the market, and many will do whatever is needed.

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