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Dubai investors write to Ruler of Dubai regarding property sector failure

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  • aedsys
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    you are going to do a good job. the people like me with you. can you tell us what will be your strategy.

    Leave a comment:


  • ami1
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    Originally posted by Marc View Post
    Hello ami1,

    I have sent you a PM.

    Cheers

    Marc
    hi to what email i have not received

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  • Marc
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    Hello ami1,

    I have sent you a PM.

    Cheers

    Marc

    Leave a comment:


  • ami1
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    how do you sign the petition i agree with all you say as i am having all these problems you mentioned with damac with my lake view project they are abusinrg the law and threatning all sorts please advise if anyone else having issues withdamac

    Leave a comment:


  • Dubai investors write to Ruler of Dubai regarding property sector failure

    "We are going to send this letter to RERA and the Ruler of Dubai."

    Hand Delivered Petition against real estate practices that harm Dubai

    We want to protect ourselves from the real estate practices that harm investors and hurt the Dubai Economy. Our single biggest fear; reflected in the collapse of the off plan market is FLY BY NIGHT DEVELOPERS. These are developers who are out to cheat people, have no intention of building and want to take advantage of the non enforcement of current RERA regulation and run away with our money. The level of speculative errant developers is so high that this will cause the market to collapse in a way never experienced anywhere before. As worrying as that is, Developers are currently applying to RERA to hand out default letters to investors (under the prevision of Article 11 Law 13) but are refusing to disclose their financial ability to build and deliver our units under the terms of our signed sales contracts. While we welcome RERA’s recent initiatives to “grade” Developers, we still feel any measure short of announcing which developers are bankrupt will continue to let real estate prices freefall. We need to know which developers are capable of building and which are not. We want access to information on the Developers who are themselves defaulting, who currently have court cases against them and who are technically insolvent.

    In an interview at your office on 27th November 2008, with Nathalie Gillet of the National newspaper, you stated RERA were monitoring Developers Trust accounts and that some Developers were reporting up to 40% defaults. RERA is the regulatory body and has a public duty to publish and announce which Developers are in financial trouble, because if the Developers have defaults of 40% and cannot gain additional finance to bridge this shortfall, then they are already technically insolvent. So therefore it would be illegal for an insolvent Developer to continue to trade and accept payments from its clients when they cannot financially fulfil their contractual obligations towards them. Any Developer who is allowed to trade without their own finance is by definition a “Speculative Developer” and must be legally obliged to return investors money in full along with damages. The fact that RERA is aware of which Developers are in financial trouble due to their own admission and therefore in many cases will be technically insolvent, but is not publicly disclosing and/or warning investors to cease payments to such Developers is worrying. This silence is sending a powerfully negative message to the local and international investor community that RERA, the Dubai regulatory authority, is not looking after investor and consumer interests. Consequently, long term investors and end users would also default, because they do not know if the units they have bought off plan would ever get built and in turn Developers unable to raise finance would flee the country with investor’s money. We therefore urge RERA to take immediate action as this can very quickly become an irreversible Real Estate catastrophe!

    Furthermore, we are against the interpretation of law 13 by the Land Department because it totally changes the context and also adds further legislation to the original wording of the Law; taking away investor rights; an extremely important factor in anyone’s investment decision. RERA has told us time and again to visit the RERA website to know our rights. Therefore any Law on the website is considered by us to be the Law in its truest form and any administrative circulars and terms and conditions that change the meaning of the law to the detriment of the future of the industry should not be upheld with in a Dubai Court of Law. Within Law 13 Article 11 Point 2 clearly states that if “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” RERA’s new interpretation of the law mandates that in case of contract cancellation the Developer keeps 30% of the contract value. Therefore the changes made to Law 13 by the Land Department constitute an amendment and not an interpretation, which is beyond the scope of this Department, because Laws can only be changed by a Royal decree. This amendment also contravenes the UAE Civil Transactions Law, which provides that monetary compensation for damages should be in direct relation to damages incurred. Therefore, according to Article 389 of the UAE Civil Transactions Law, it is left to the discretion of a judge to assess monetary damages. RERA’s interpretation of article 11 mandates liquidated damages in favour of developers only, limiting the judge's discretion in assessing the damages, in direct violation of the UAE civil Transactions Code.

    We note that you have stated to a number of newspaper reporters that investors should only seek advice from professionally trained RERA representatives and have been directed to the RERA website for clarification of the Laws and been advised not to enter into any sales and purchase agreements without fully understanding their rights. We have visited the RERA website many times prior to purchasing our investments and we still visit it now to ascertain if there have been any changes in Laws or policies which could effect our investments. We can download Law 13 in PDF format. Article 11 point 2 clearly states we are entitled to a minimum of 70 % of any money we have paid to a Developer back should we default on our SPA. There is nothing on the RERA website regarding your Departments Administrative Circular dated 10th November 2008. This is extremely misleading / detrimental to investors who have bought in the belief that the laws in Dubai are the ones publicly published on your website. This is because they read these Laws and understand that they do in fact protect their invested money, but if your publicly unpublished Administrative Circular was to become Law, then their invested money would be lost.

    On the RERA website your Department have published a number of key interviews with senior members of your staff, in one of these interviews dated 25th August 2008, between your Senior Legal Advisor Mr. Emad Eldin Farouq and a reporter from Emirates Business 24-7, the Land Department set out the legal requirements of a Developer to register off plan properties with your Department. The following statement by Mr. Farouq is published on your website.

    "Any sale or other disposition that transfers or restricts title shall be void if not registered in the interim real estate register, the new law stipulates. Any developer who makes a sale or other disposition before the law comes into effect must register it within 60 days, Farouq said"

    This interpretation of law 13 by Mr. Farouq clearly says any sale must be registered with the Land Department or be void and that a Developer, MUST register it within 60 days. So it makes it the Developer's sole responsibility to register our purchases within 60 days or the transaction is void. Through this statement by your legal advisor Mr. Farouq, it is very clear that the Land Department are telling us under the rules of Law 13, we are entitled to our money back in full, if the Developer has failed to register our purchases with the Land Department within 60 days of us signing a contract with a Developer, because the Developer through his negligence has allowed our contract to become void. So Law 13 is absolute regarding the stipulated 60 day mandatory period giving the Developer no recourse beyond this time limitation and making time at the essence for the Developer to adhere to this clause within Law 13.

    Furthermore, we feel the withdrawal of a previous Dubai Government commitment and incentive, that guaranteed a Residence Visa with any freehold property bought by an investor, takes away our rights and any potential buyer’s rights and negatively impacts on our investments. The Dubai property sector flourished quickly on the promise of freehold Residence Visas and a retraction like this affects investors and end users and hampers investment decisions. By removing the right to freehold property Residence Visa’s; the department has dramatically reduced the number of would-be end users in Dubai. Had we been made aware of this earlier we would not have committed more of our funds into Dubai Realty, because there was no stoppage in land sales and new development launches after this announcement so there would have been an increase in the supply of units, but this change in freehold Visa law curtailed demand abruptly. The Dubai Government made a commitment in 2002 to 3 year renewable Residence Visas to expatriates owning freehold property, but halted this in 2008 causing widespread panic amongst investors and end-users that Dubai property laws are no longer “safe” and can be changed unexpectedly to the detriment of the investors. We recognize the sudden withdrawal of Visa’s might be due to political reasons and to protect the Emirate from harbouring fraudsters and fugitives. These types of people should most definitely not be allowed in Dubai; however the Dubai Real Estate sector was allowed to prosper quickly on the promise of freehold Residence Visas. Developers marketed apartments with freehold Residence Visa’s attached and were not prevented from doing so by any government department. We therefore welcome the governments’ latest decision to unify and restart the freehold visa policy but measures should be taken that commitments to the sector are not prone to any misinterpretation which cause panic. We also suggest that retirees who initially formed a significant proportion of investors in Dubai Realty be allowed to live in Dubai as they are net consumers within and are positive to the growth of the economy.

    Additionally, many of our members signed contracts between when Law 13 was first issued 14th August 2008 and 10th November 2008 the date of interpretation. During this period Developers and Real Estate companies were marketing their Units with the benefit of a minimum of 70% full refund on any monies paid by a purchaser. Therefore, the Developers must have also made provisions within their budgets to accommodate repayments to defaulting clients. Thus many other members bought during this period or carried on with their payments knowing that there was a Law in place protecting their off plan investments to a sum of at least 70% of their total invested money. Therefore investors in off plan contracts signed during the period before 10th November 2008 should be entitled to at least 70% back of any money they have paid to the Developer.

    We consider ourselves to be mature and seasoned investors and realize Law 13 was changed by the Land Department to stop many Developers from going bankrupt very quickly, but this is only a short term fix for these Developers. It does not address the long term repercussions of negative investor sentiment caused by a sudden change of your interpretation of the laws to the detriment of investors. We do not want to make anymore payments, until we have proof that the developers have the financial ability to deliver our units, and that our money is safe from the risk of speculative developers defaulting and fleeing the country with our money. Cancelling of projects will reduce supply increasing prices but more importantly, will increase confidence in the Emirate that the government is prudent in protecting investor interests.

    We hope that the Dubai Government will take our concerns and suggestions seriously, and will implement our suggestions to bring back the confidence and stability to the Dubai property market. Dubai’s initial withdrawal of freehold Visas and misinterpretation of law 13, have sent a negative message to investors around the world; because it demonstrates that the laws can change to their detriment making Dubai and the UAE no longer a safe place to invest. If no solution is meted, Dubai will lose its global appeal very quickly as it no longer protects its investors and this holds true not just in real estate but for any business that would like to setup here. Potential investors will have reasonable opinions that the laws in Dubai can suddenly be changed to their detriment further exacerbating real estate woes in Dubai. We therefore urge you to protect all the parties involved by providing them with equitable retribution

    We are investors in Dubai and expect the laws prescribed by the government to protect us against foul play, we consider ourselves to be very important to the prosperity of Dubai more so than any Developer. The Developers are only required to build our units; once this is achieved it is us and not the Developers that will be around for years to come spending our money within the local economy. People have believed in the Dubai story and have sold their homes abroad to be able to afford homes in Dubai, so this situation cannot be more serious. Dubai’s real estate sector is worth $ ½ Trillion US Dollars so therefore any change of laws affects investors, brokers and in the long run developers as well as the general economy as the sector contributes 30% towards Dubai GDP. We urge you to protect us with the prescribed laws. The level of confidence of people buying in Dubai was such that we never considered ourselves to be foreigners but considered Dubai to be our own home.

    We are also sophisticated enough investors to realize that Dubai’s property sector is NOT currently undergoing a “correction” but an OUTRIGHT COLLAPSE which can only be contributed to investors total lack of trust in the laws, which were initially there to protect the investors. In 2008, Investors outweighed the end users at a ratio of approximately 70% investors to 30% end users. There is far too much product in the off plan market to be totally absorbed by end users just yet; the demand will be there once it is ready. So investors are a major factor in the prolonged growth and success of Dubai and this reinforces our view that projects that have not broken ground yet should be cancelled.

    This petition documents our group’s most pressing concerns, but our main concern which is without doubt why this group was formed and continues to gain members, is we want to know if our invested money is safe. The Dubai Government introduced the Escrow account system during the early part of 2008; this new product was introduced and marketed by the Government to encourage further foreign investment on the basis that it protected investor’s money from any fraudulent Developers. The term “Escrow” is widely used and understood by investors around the World, so this was seen as a very positive step by the Dubai Government and sales escalated greatly on the basis that people felt their invested money was safe. Investors have read and understood Law no 8 as published on the RERA Dubai website. RERA themselves have directed us to their website to inform ourselves of our legal rights. So we will consider what has been published up to this date as Dubai Law to be the Law in its truest form. Administrative circulars or any other terms and conditions that change the meaning of the law that do not protect the future of this industry are bound to cause panic and real estate capital destruction. Law 8 Article (9) Item 1 clearly states that “The guarantee account shall be opened in the name of the project and the proceeds shall be used exclusively for the purposes of constructing the real estate project. The developer’s creditors are not allowed to attach the money deposited in the guarantee account” Therefore any payments made by the Developer for the land from the escrow account is illegal as the Developer could only use the escrow proceeds for the purposes of constructing and not for land payments. We are therefore quite distressed that the Escrow account managers are allowing land payments to be taken out of escrow accounts by the Developers, when it is a direct violation of Law number 8. We are concerned that if Developers have been adhering to Law no. 8 and are only allowed to use monies placed in escrow “exclusively for the purposes of constructing the real estate project”, then none of our money can be legally spent until construction work as started, why do they need 20-30% of our money in escrow when they are not legally allowed to spend it, why does your Administrative Circular allow a Developer to retain 30% of our money and cancel our contracts when they may never ever start the onsite construction. RERA needs to regain investor credibility by enforcing Law no. 8, Developers who have acted illegally as per this law, should by removed from the “Register of Developers” and made to pay back the investors money in full.

    The Developers according to the Law, would only be able to claim their costs on a monthly basis spread across the construction phase of the development. This however is not the situation here in Dubai; the Master Developers are selling Land to Sub Developers on an instalment basis, but the escrow account managers are then allowing these Sub Developers to pay for the Land using our money from the Escrow accounts, before the construction on the site has even started clearly violating the Law no 8. The Developers are also allowed to withdraw set percentages from the Escrow accounts to cover their costs, 5% for Marketing & 5% for Management. It is worrying to note that escrow account managers allow withdrawal of moneys from the escrow account on a percentage basis; without invoices which would give the withdrawals legitimacy. These are allowed to be taken out before construction has started and with them been set percentage costs the Developer does not have to prove he has spent this level of expenditure on the development, again these cost are been taken out in violation of Law no 8.

    There have been tens of thousands of off plan sales made since the introduction of the Escrow account system and the Master Developers have received money to carry on infrastructure projects through this route. So when these Sub Developers start cancelling their projects because it is no longer financially viable to build, it would only be fair that the Master Developer would also not be carrying out infrastructure developments and refund the money to the investors. The government should do as much as possible to return investor moneys in full if infrastructure projects and developments are cancelled or delayed. It is extremely worrying to note that the penalty of 30% against land default is being applied by the Master Developers to the Sub Developers at a time when laws are being ratcheted up to shake investor confidence; investors are facing the global financial crisis and the country’s own banks refuse to give out mortgages and or project finance; demonstrating they do not have trust in their own real estate market.

    In order to help put an end to the lack of confidence in the Dubai property market, which is currently attributing to massive price reductions, we would like RERA to protect our investment by taking the following actions:

    1. Payment freeze

    RERA should freeze developers from taking any more money from investors until it is proven that the Developers have financial capability of building under these market conditions. The Regulator should take this time to investigate which Developers have acted illegally/unreasonably. Any measure short of this will continue to make the real estate crises in Dubai, worse.

    2. Changing the payment plans for all projects according to construction progress

    Not more than 10% shall be paid prior to construction. From 10% onwards the payment plan shall be linked to construction and the next payment shall not be due until the structural concrete foundations are complete.

    3. Audited Statements

    Developers can not terminate any contracts or carry on claiming for further instalments without an audited escrow account by an independent auditor which has to be submitted to the Land Department. The Land Department shall provide an NOC to these Developers where no irregularities are found on the escrow account. We must receive a copy of this before we make our next payment

    4. Performance Proof

    Developers shall provide an audit of their escrow account and provide proof that they can independently finance 30% of the total project costs. Developers who can not demonstrate this level of liquidity within a project clearly cannot build within these market conditions and is in breach of their own contract. Therefore they are not be entitled to claim further instalments or terminate purchase contracts and must return the money in full.

    5. Termination of Contracts

    Termination of a purchase contract shall not be allowed by the Developer if the purchaser has already paid 10% of his contractual payment schedule and the foundations are not complete. In case of cancellation due to this breach the Developer must return the money in full.

    6. Reinstatement of Freehold Residence Visas and/or some other interim solution

    A solution to the revoking of freehold investor Residence Visa’s which has had a huge impact on Dubai Realty. An irrevocable framework should be in place such that Investors be allowed to live here and/or visit their property readily and easily as originally promised.

    7. Cancelled / Delayed Projects

    Projects that are cancelled or date of completion delayed for greater than 12 months (as per contract) should be cancelled and Investor's monies to be returned. Projects where no visible construction has commenced and/or payment below 40% has been made should be cancelled with investor monies. This is extremely important to reduce available unit supply and re-invigorate confidence that Dubai takes its investors seriously

    8. Bankruptcy Law:

    We believe there are some developers who are going to declare themselves bankrupt and walk away from their commitments. In the interest of the Real estate industry in the UAE as well as the Investors in the general economy in the UAE, we urge you to take all measures possible to not allow this to happen. The UAE was always marketed by the government as a “safe haven to invest” and the Law should promote this. Investigations into each and every Developer’s financial accounts must be carried out swiftly by independent auditors to ensure that companies were not misappropriating funds and acting illegally with investor money. For example, we have reason to believe that Developers would abuse the first instalments made for their projects by putting it into another and “flipping” properties which constitutes fraud!

    9. Reinstatement of Finance:

    One of the greatest fears that the market is collapsing is the withdrawal of mortgages. In fact at the start of 2008 mortgages increased 147% so it is extremely worrying that Developers have to pay for forfeiting the land when a) they cannot raise project finance b) the buyers of their development cannot secure funding from the governments own banks

    10. Investigations:
    Each Developer in Dubai must be put through a full length investigation to ensure that they have acted legally, intend to fulfil their contractual obligations towards investors and NOT RUN away with our money. Escrow and Developers general business accounts must be frozen. Developers must not be allowed to leave the country until they are cleared by independent auditors and the CID for malpractice of any kind. Developers who commit fraud must be forced to bring the money siphoned from the escrow account back to the escrow account. THIS IS CRITICAL AND ACTION MUST BE TAKEN IMMEDIATELY. IF NOT TAKEN, UAE WILL NEVER BE CONSIDERED SAFE AND INVESTORS WILL NEVER RETURN.

    11. Laws:
    Developer contracts must be in accordance to the law otherwise the law must overrule the contract. This is always the case internationally and is important to the Dubai market specifically at this stage because most contracts are usually biased towards the Developer irrespective of RERA laws. RERA in the future must approve contracts and ensure they follow RERA Law

    All the above steps are crucial in maintaining investor confidence and reinforce the government's commitment in protecting the real estate market.

    We have taken the time to bring our genuine concerns and grievances to your attention, so we would please respectively request you to give us a formal public response through a statement, published on the RERA website and through the newspapers of the U.A.E.

    Signed on the following pages for and on behalf of the Dubai Property Investors Group
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