When Dubai burst onto the international real estate scene in the early-2000s, many investors viewed their purchases as short-term, and bought with the intention that they would be re-sold well before construction was complete.
Now that the first wave of construction has been completed, and mindful of the lessons of the global economic crisis, investors in Dubai’s real estate market are generally more sophisticated and have grown ready to take a long-term view.
There is a growing awareness that Dubai’s real estate market is becoming bifurcated, with high-end properties in good locations increasing in price and the lower quality properties stagnating in price.
SERVICE CHARGE ARREARS
One of the factors that, in recent times, has had and will have the greatest impact on the value of real estate, has been the maintenance and management of common areas in the development.
Under Dubai’s Jointly Owned Property Law 27 of 2006 (the “JOP Law”), the common areas in a development were removed from the control of the developer and placed under the control of an “Owners Association” comprising the owners of the units within the development.
In the Middle East, the concept that, after the purchase price has been paid for a piece of property, there should be ongoing service charge payments, is relatively alien. Partly for this reason, the levels of service charge recovery are quite low in certain developments.
Inevitably, if service charge recovery rates are low, it will not be possible for the Owners Association to maintain property to the standard that was intended. Over time, this could lead the lifespan of the development to be reduced, and, therefore, for the value of the units in that investment to fall.
The developments that tend to be the best maintained are generally the high-end, high-value developments. Of course, there is also a more limited number of such developments, as compared to the cheaper projects, and that limited supply has also led to price rises in the expensive developments.
The difficulties that have been experienced in recovering service charge at some developments have led to calls that the powers of the Owners Associations under the JOP Law should be clarified — including for example to make clear the extent to which services may be withheld from the owners and occupiers of units for which there are arrears.
CONSTRUCTION DEFECTS
Due to the extremely hot weather in Dubai, a failure to maintain a development can lead to any construction defects becoming apparent sooner than would otherwise be the case. This is leading would-be investors to view the effectiveness of their potential investment’s service charge regime as an important factor to consider. Similarly, existing investors whose developments may be impacted by construction issues are presently investigating their rights.
The JOP Law states that the developer remains liable for 10 years from the date of the development’s completion certificate to repair and cure any defects in the structural elements of the development notified to the developer by the Owners Association or a Unit Owner.
