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Dubai: Penalising developers with hefty compensation for delays in delivering properties will lift investor confidence in Dubai's softening real estate market, officials said.
Currently, developers are not legally bound to pay compensation to property buyers in case of delay. Any compensation arrangements are at the discretion of developers rather than being enforced by law.
Analysts say this situation dents consumer confidence and should be addressed by Dubai's authorities.
"If Dubai instills more confidence by ensuring there are fixed penalties for delays, this will add much greater value to the market," said Sudhir Kumar, executive director for the property division of Dubai-based Morison Consulting.
Kumar called for a fixed penalty of one to 1.5 per cent of the total unit value per month of delay.
Alexis Waller at legal specialists Clyde&Co's Middle East branch, said developers should either offer consumers their money back if the completion date and grace period have passed or encourage investors to stick with a project by paying a monthly compensation fee.
"I think it's very important that official regulation is introduced in this area," she said.
Unfortunately for Dubai's real estate market, a combination of escalating material costs and a shortage of skilled contractors is putting huge pressure on developers to meet completion dates.
Damac Properties took matters into its own hands when two of its projects, Marina Terrace and The Waves, were delivered beyond the scheduled date due to circumstances "out of the company's control".
Damac CEO Peter Riddoch said, "We would welcome any legislation that introduces a level playing field [regarding compensation] for all developers."
The move, others suggest, should be delayed by at least five years. "Dubai's property market is immature. It is unreasonable for the developer to take the heat when many of the delays are caused by contractors or market conditions," said Hashim Al Dabal, chief executive of Dubai Properties.
Purchase contracts dictate payments
- Property developers in Dubai are not legally bound to pay compensation
- Currently purchase contracts dictate compensation
- Several freehold property buyers were hit by construction delays
- More than 13,000 families have moved to freehold homes already
- A number of projects, including Palm Jumeirah, Jumeirah Beach--Residence and parts of Inter-national City have been delayed
Your comments
I have bought one bed appartment in International City. I have completed 100% payment, but still don't have any contract documents belonging to my property.
I went to the sales office and they sent me here and there, as nobody wants to see a meagre Dhs 300,000 investor.
Ultimately they show a plain blank face and ignorance to what is not going on.
Nasar
Dubai,UAE
Dubai needs to go beyond compensating for delays, legislation is needed to protect investors money full stop. My investment in The Lighthouse Dubai Marina totally disappeared when the developer emptied his bank account(s).
Stephen
Middlesbrough,UK
It should simply work back-to-back. By this I mean that developers get liquidated damages for each day of delay cause by the contractor therefore they should pass this on to their customer. To excuse this practice because "Dubai's property market is immature" is an invalid argument.
Rick
Dubai,UAE
When the developers levy penalties for delays to contractors, it is imperative that they correspondingly enter into a delay penalty clause with the buyers of the freehold property. Timely delivery is an integral part of a legal contract and the authorities should enforce this to get credibility and commitment to the market. This will also improve the image and confidence in the Dubai real-estate market and make it at par on this factor with international best practices.
Narendra
Manama,Bahrain
The Authorities should be fair to everybody. I am paying a big fine for every single day of delay I make in the monthly payment to the developer. However, the developer yet to finish 1/4 of works of the building which is due in October 2006. I am told that they may finish the end of next year, with a delay of 16 months but without composation to anybody. Is this Fair?
Ben
Abu Dhabi,UAE
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