Little clarity as Strata Law arrives

Many developers are still not making progress on setting up homeowner associations and disclosing important details about buildings as yet another deadline for compliance from the regulator comes on Thursday.

Dubai, 30th August 2010.  The Dubai Marina exotic atmosphere.  (Jeffrey E Biteng / The National)
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With little clarity about penalties from Dubai's property regulators, many developers are expected to miss a deadline today to disclose a wide variety of information to buyers. The disclosures are required by the Strata Law.

The successful implementation of the long-delayed law, which governs how buildings and developments are maintained, is a key issue for the property market because it is expected to increase confidence among prospective buyers looking for holiday properties or primary homes in the Emirate.

Yet the 2007 law still has not come fully into effect. Across Dubai, homeowner associations have not been set up as legal entities and developers have not given out the information about buildings that is needed to establish fees and responsibilities for jointly-owned property, analysts and lawyers say.

"I think that many developers don't have the money or the desire to comply with something that they don't know is going to have any material financial impact on them," said Michael Lunjevich, the head of the property practice at the law firm Hadef & Partners in Dubai.

The directions issued by Dubai's Real Estate Regulatory Agency and Dubai Land Department say that sales contracts could be "void" if they are not accompanied by the disclosures that come due today.

But it is unclear whether or how the regulators will penalise companies for not keeping up with the deadlines.

"The better, more sophisticated developers are trying to comply," Mr Lunjevich said.

"I've given up trying to predict when the law will get up and running. When the law came out in 2007, we said 2008 would be the year. Here we are in 2011 and we still haven't got properly registered documents and owners associations established as legal entities with bank accounts."

The rationale for the disclosures required of developers is to unify the way buildings are described to buyers across Dubai and make them fully aware of what their responsibilities will be as owners.

These documents are well established in more mature markets and help to avert disagreements about maintenance fees.

The lack of payment of these fees has started having an impact across the Dubai market, with some residents being threatened with having electricity and water cut off to common areas such as lifts and lobby bathrooms.

The problem has been that many apartments are owned by people who feel they should not have to pay the annual maintenance fees.

Some complain the money is being misspent and others are so overextended with obligations that they cannot afford the additional expense.

Manuela Reis, the manager of residential sales and leasing at the marina office of Better Homes, said "at the moment, the problem is limited to individual buildings suffering from tenants moving out and leases not being renewed.

"If these issues are not addressed in a timely and proper manner, it will have an increasingly negative impact on the market."