In May 2009, the Dubai Real Estate Regulatory Authority announced that it had frozen the escrow accounts of certain property developers. Those developers - who had sold properties off-plan - could not give an assurance that construction was progressing and that the houses had been registered with the Dubai Land Department.
As the property market stumbled after the global downturn, it was a good attempt by Rera to ensure that the interests of property investors were protected. What we have seen in the subsequent two years, however, is that there were many more problems under the surface.
As reported in The National yesterday, Rera's chief financial officer has warned that investors in stalled Dubai projects are unlikely to retrieve millions of dirhams in down payments because many developers have already spent the money.
"What I can tell buyers is, don't think what they have paid into escrow accounts actually exists," Ahmed Khalid Obaidat said. For some homebuyers, many who have fought to reclaim their down payments in the courts, these are the words they have been dreading for years.
Although the news is bad, Rera's clear statement on the issue is refreshing. For too long, buyers had been reduced to guesswork about exactly how developers were using the cash in these so-called escrow accounts (which, in fact, have not been managed as escrow accounts in the traditional sense). Most of the irregularities, according to Rera, concern payments made before a federal law established escrow accounts in 2007.
These payments must be resolved, both out of fairness for buyers and to clean up the property sector. Clearly, unethical practices have taken place with unscrupulous developers misusing or absconding with the funds. To restore confidence, these malefactors should feel the full force of the law.
Rera, however, is a regulatory agency, not a law-enforcement body. It has often come down on the side of the buyers but its powers are limited. When it has demanded more transparency from developers, those calls have often gone unheeded.
The property sector urgently needs a transparent enforcement mechanism. Some of the promised projects are never going to come online - for buyers who have invested their life savings, there must be legal options to recover their down payments. Rera has identified the problem, now we need the solution.