While you may enjoy paying lower prices, remember that too-good-to-be-true probably is. Here are pitfalls you must watch for to avoid falling for a scam.
Buyers should beware in slower property market
Much has been written recently about how the property market has turned in favour of the buyer. While that may be true in the sense that there seem to be more sellers than buyers nowadays, people with cash who are looking for a bargain should remain vigilant. Stories abound about unethical brokers who, since they are paid on commission, will say and do anything to close a deal - particularly deceiving buyers about prices and terms of sale.
While some of these practices are unethical, such as advertising wrong prices or stealing inventory from fellow brokers, others are just plain illegal: publishing altered photos of projects presumably under construction, working as an unregistered freelancer or even selling the database of owners acquired from a previous employer. In the case of altered photos, buyers can file a criminal case for misrepresentation with the public prosecutor in either Abu Dhabi or Dubai. They should always check their broker's license number with the Dubai Real Estate Regulatory Agency (RERA).
But overall, as consumer rights evolve in the UAE, the best offence is defence. In other words, know what is out there, and be cautious. There are more than 2,000 registered property agencies mentioned on RERA's website, but many of these have been laying off sales agents or have de facto closed down. Better Homes, the largest property brokerage and services company in Dubai, has cut its staff to 500 from 700 during the first half of this year.
And for those still in the business, there is not much left to do. Some agents concede that they go to work for only a couple of hours a day. "In the past, we have been receiving many offers from smaller brokerage companies to buy their businesses, the trade licenses and the shop altogether," said Michael Michael, the director of sales at Landmark Properties. "Many of them have also invested in properties that they can't afford. They have mixed up their business with their own investment, and are now suffering the consequences."
For James Knowles, a director of Asteco, one of the fundamental flaws in the market is how property brokers are paid. "Many brokers in the UAE are paid a high commission of the value of the transaction and no basic salary or benefits," he said. "So to have any sort of income they have to transact. There is a level of desperation today where they may push for a transaction to happen. It conflicts with the advisory model."
A broker who is worried about how he will pay his rent tomorrow may not be the best adviser. "During the last downturn in the property market, a lot of the agents have been made redundant," said Iseeb Rehman, the managing director of Sherwoods. "As a result these agents are working as freelancers from home, doing a little bit here and there. All the people I have interviewed recently for a position told me they have all been actually freelancing for the last few months. What does that mean?"
According to the Mr Rehman, it costs a brokerage company between Dh12,000 (US$3,267) and Dh14,000 in fees to register an agent with RERA, get him a visa and complete the rest of the paperwork. Charles Neil, the chief financial officer of Landmark Properties, said: "Bad practices have always been there, but what happens now with the downturn is that some people are really getting desperate to get their commissions and would try anything to do so. We say 'caveat emptor', or buyer beware."
A common practice is to advertise properties at a lower price than the market value, he said. "What they are doing is that they are trying to get people to call," Mr Neil said. "The customer rings up to inquire and then the client is told: 'We are very sorry, we have just sold it but we have another flat with another price.' In fact, there are fewer bargains in the market. We think the people who really had to sell have either done so or are now holding their properties."
Also, brokers may not tell you the whole story or perform due diligence. So do your own homework. "I was close to the expiring of my tenancy contract, and with the falling prices buying sounded more economical," said Isaam Elkasrawi, a prospective buyer who is living in Dubai and working in Abu Dhabi. "But after bad experiences with brokers and owners, I finally cancelled the idea. One broker lied to me about the maintenance charges and said the flat would be handed over in two weeks.
"I was able to find the owner myself from the directory, and I found out that the apartment was not being handed over for three months and that the maintenance charge was double." Mr Elkasrawi also remembers two employees from the same brokerage calling him for the same apartment, but with two different prices. "Another time I was ready to buy one apartment with cash," he said. "I gave a deposit to the broker and they told me it is already booked for me. But the same agent sold it to another buyer at a higher price and finally gave me my money back."
Several brokers have been caught using altered photographs to make investors think construction work is progressing, although nothing had actually started on the site. Desperation often leads to a pushy, aggressive approach towards a sale, according to Mr Knowles. "They are doing things with maximum efficiency," he said. "So they probably lack in doing a proper due diligence: ensuring there is a title deed, that there are no debts involved with the site and that you know who the real owner is."
Another practice is to panic owners into selling at a low price, even though they have no intention of selling at all. "People have acquired databases of the major developers," said Mr Michael. "We see that among potential candidates when we are interviewing." Mr Michael said that armed with such lists, agents can call owners consistently or even advertise their properties at a low price without the owners being aware of it.
"They get a cheque and then they convince the owner, saying that prices are coming down," he said, adding that at least during the first half of the year, some agents were using these tactics to get people to sell below market price. Mr Rehman said: "I get calls 24 hours a day from estate agents. They try to convince me to sell my villa. They say they have a buyer. But how did they get my number? I don't know. I tell them to stop, that I am in the business myself and that, by the way, I live in the villa."
Fair play is not always a priority in hard times. Some agents try to steal competitors' inventories. Buyers also can get confused about the real number of properties on the market and the real prices. "When you pick up the newspaper, it seems that there are lots of the same type of property available, whereas it is actually the same property listed with multiple agents," said Mr Neil of Landmark.
Also, according to Mr Neil, some brokerages sign two memorandums of understanding (MOU), one with the actual price and a second one with a higher price for the bank, because the bank would finance only 70 per cent of the value property. So with the other MOU they get 100 per cent financing. Sellers shouldn't accept such requests from buyers, as they run the risk of being an accomplice to fraud should the bank ever investigate.
A final word of caution: make sure that the estate agent you are paying is actually working for you. Some brokers might push you towards villas whose owners are paying them higher commissions, rather than show you the properties that best fit your needs. @Email:firstname.lastname@example.org