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Broker bylaw is right step forward for property sector

Saladin Aljurf, associate attorney in the Real Estate and Commercial Department, Hadef Al Dhahiri and Associates focuses on new rules for regulation of real estate brokers and other protection for investors seeking to purchase and invest in real estate in Dubai.

Although the Dubai real estate market continues to expand, it is, to a large extent, unregulated. While many buyers are satisfied with their property purchases, particularly in a market that is growing exponentially, there have also been numerous purchasers who have been frustrated by the lack of buyer protection and have felt short-changed with regard to the actual properties delivered – or, in some very unfortunate cases, not delivered at all.

Certain real estate developers and brokers in Dubai have been subject to criticism in the past. Many buyers claim that developers have mis-stated or misrepresented the size, location, appointments and delivery dates of the properties they market, leaving buyers with little recourse but to accept finished apartments or villas which differ materially from the initial plans and projections shown to buyers.

Additionally, numerous buyers complain of brokers’ lack of integrity and honesty, and state they often request high commissions based on limited work, or worse, on fraudulent assertions.

Brokers often act for – and take commissions from – both parties, and apparently feel they owe little duty to either side. The overall effect of this has been to sour many investors in real estate here, and some potential foreign buyers are suspicious of certain local developers and brokers.

As a result of this growing concern, the Government of Dubai has recently taken its first steps to regulate the real estate market.

The most notable recent development has been the issuance, in May, of Bylaw No 85 for the Year 2006, On the Matter of Organizing the Real Estate Brokers Register Within the Emirate of Dubai, by the Dubai Land Department. Furthermore, the Land Department has drafted a professional ‘oath’, which is proposed to be adhered to by real estate brokers within Dubai.

Pursuant to the new bylaw, these brokers will be subject to a comprehensive application process that will include a certification examination, currently being finalised by the Land Department’s brokerage division in tandem with experienced brokers and real estate experts.

The application process will give credit to brokers for qualifications and practice focuses. In addition, the brokerage division will review applications with an eye towards ensuring that the applicants do not have any ‘blacklist points’, which can be cases of misconduct, fraud, forgery, mishandling of funds. In accordance with Article 13 of the bylaw, approved individuals and companies included in the register of the division are required to renew their registration yearly.

Both the bylaw and the oath seek to set out the general rules of conduct for brokers regarding honesty, trustworthiness, transparency, avoiding any conflict of interests, and preserving confidential information of clients.

The division has the right to rescind broker registration for brokers who violate the terms of the bylaw, the oath, other laws and regulations, or accumulate three or more blacklist points. Sanctions range from warnings, being suspended from brokerage practice for six months, and permanent placement on a brokerage ‘blacklist’.

The initial application deadline for broker registration is the end of November. However, this deadline is preliminary, and based upon response, the Land Department may opt to extend the deadline for several more months.

The ‘Light House Affair’ of six months ago attracted unwelcome publicity to Dubai, and has called attention to the need to protect buyers from the deception of such developers. Buyers had reportedly paid substantial deposits with respect to off-plan apartments to a developer, Emad Ayoub, who apparently assured the buyers that the Light House building in the Dubai Marina would be completed soon.

Instead, Ayoub fled with US $3.8 million (AED13.9 million) back to the UK and the buyers were left with practically worthless documents. There is no extradition treaty between the UAE and the UK, making punishment and civil recourse difficult, if not impossible.

Legal analysts have been calling for the introduction of legislation in Dubai that would require the use of escrow arrangements for property transactions. The buyer would pay the purchase price, or a portion thereof, into an escrow account.

The developer would only be permitted to withdraw funds from the account to pay contractors for work upon reaching quantifiable milestones, with the balance drawn down upon completion of the property. A buyer could thus conduct a purchase transaction with significantly less concern.

Additionally, there has been a call for legislation that will mirror that of the bylaw to more rigorously regulate the qualifications, registration, and licensing of developers.

Others have also recommended the issuance of rules and regulations to protect buyers from receiving properties that do not conform to the plans or the representations of developers – or to compensate buyers who do accept such ‘nonconforming’ properties.

The rapid development in Dubai over the last several years has outpaced the legal and regulatory framework, and market modifications are needed to protect foreign purchasers of real estate within the emirate.

The new bylaw is a step in the right direction for the real estate sector in the emirate. But Dubai will need to regulate developers in the very near future if it is to continue to attract, and maintain the confidence of, foreign property investors in the region.

“Both the bylaw and the oath seek to set out the general rules of conduct for brokers regarding honesty, trustworthiness, transparency, avoiding any conflict of interests, and preserving confidential information of clients.”

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