Dubai’s real estate authorities have decided to retain the status quo on the percentage developers should put up in escrow before launching offplan sales. But there could still be significant differences between what developers used to put up earlier and what they have to do now.

In a statement issued Thursday, the Dubai Land Department said developers need to place in escrow 20 per cent of the “total project value”. Developers until now had been used to putting up a bank guarantee of the “value of the construction”.

Clearly, there will be a marked increase in developer guarantees if the “project value” is enforced. Project value is much more than the sum of the costs related to construction.

Developers will be awaiting further clarification from the real estate authorities on what this might mean.

There is a strong demand from developers to “deposit the 20 per cent escrow of the total value of the future projects they intend to launch”, the Land Department statement had added.

In addition to the percentage of the project value as escrow, developers must continue to verify ownership of the project and pay for the land to be used in full. In addition, they should also receive approvals from all “competent authorities”.

There were plans to enforce stricter requirements that freehold developers had to comply with, according to informed sources. But in the latest statement, there was no mention of any plan to raise the percentage limit to 50 per cent of project completion as a pre-requisite for developers to launch offplan sales. There were many who believed that such a higher limit would scale down the pace of offplan launches and sales and that it could hurt the Dubai property market in the short-term.

But many big developers had been arguing that there were too many offplan launches happening in Dubai, many of them with extended post-handover payment terms. This was bringing back speculative buyers into the marketplace, developers had warned.

But in a statement, the Land department tried to dispel all concerns on medium-term health of the market. Sultan Butti bin Mejren, Director-General, said: “There is a strong coordination among all relevant government institutions including Dubai Land Department, as well as between developers and various parties in the market, to establish confidence among investors and achieve the highest degree of transparency in Dubai’s real estate market.” This “enhances investor confidence in real estate development projects”.

Late last year, real estate authorities had been sounding out private developers about the need for stricter project compliance and on build quality. It was at the time that the 50 per cent cut-off was mooted for offplan sales to begin. Some of Dubai’s leading developers and even boutique operators had confirmed to ‘Gulf News’ that such a move had been in the pipeline and that it would have come into effect this year. (Apparently, the move would have exempted government owned developers from the requirement.) As such, there were limited offplan launches in Dubai during the first few weeks of this year, with Emaar and Damac launching one apiece and another one from LIV, a boutique developer with a tower project in Dubai Marina. It will be interesting to see whether offplan launches pick up now that the Land Department has clarified the 20 per cent escrow requirement.

The Land Department’s statement also said that 150 new projects were registered in Dubai during 2017, at a combined value of Dh82 billion. And that 90 projects were completed during the period. According to Bin Mejren, “All agreed and applicable procedures in the market provide reassurance to both developers and investors. They also work to limit transgressions among all parties, and prevent the emergence of any negative activities to protect the Dubai’s real estate market, especially as it has gained wide international fame by focusing on protecting the rights of all. This has attracted investors from all over the world, establishing Dubai as the preferred place to live, work and visit.”

What Dubai’s developers had been used to ahead of offplan launch

For opening an escrow account, developers needed to funish:

Twenty per cent of the project’s construction works shall be completed or a bank guarantee of 20 per cent of the value of construction shall be provided;

No Objection Certificate from the master-developer stating the project name and authorizing offplan sales and marketing;

Final building permits;

Copy of the Commercial License:

Title deed of the land in case the owner of the land and the developer are different.

Editor's Note: This article was originally published in Gulf News on Thursday February 22nd, 2018 http://bit.ly/GulfNewsDubai’sLandDepartment