Emirates insurance association chief says strata law will cost homeowners Dh4.5bn in extra premiums.
Dubai homeowners may need more insurance
Homeowners in Dubai may have to cover up to Dh4.5 billion (US$1.22bn) worth of extra insurance now they are required to make sure their policies are in line with the country's new strata law, says a top insurance official.
Fareed Lutfi, the secretary general of the Emirates Insurance Association's commission for Gulf insurance and reinsurance companies, said "there are a lot of underinsured buildings" in Dubai, especially within free zones.
The Dubai strata law was introduced more than two years ago by property regulators to shift control of developments from developers to homeowners but the necessary regulations to implement the law were only released about six months ago.
A key requirement of the law is that all buildings be insured up to their replacement value. Currently, most have a range of policies but not all are up to strata law levels.
The added cost is among a raft of likely expenses homeowner associations will have to contend with when they assume management of property developments in the coming months.
Consultants have pointed to the fact that many buildings and developments do not have a "sinking fund" to cover the costs of replacing vital equipment and many buildings have been inadequately maintained. Together with greater insurance costs, maintenance fees may also need to be increased to keep buildings safe and operating efficiently.
However, the possibility remains that the transition from developer to owner control could also lead to savings in some cases, said Gary Bugden, the executive chairman of the strata consultancy PRD Nationwideand one of the architects of the Dubai strata law.
Developers, he said, were trying to extract as much money from owners of property as they could in the aftermath of the financial crisis, which led to the sudden end of sales of unfinished property. Some had overcharged for maintenance costs by as much as 40 per cent, sometimes by selling equipment at much higher costs from their own firms, he said.
"This created a situation where the Government had to institute integrity into the market," he said. "It was essential that the Government do that in order to preserve the future of the market."
But Dubai's regulators had to delay implementing the new rules for the strata law for more than two years to cushion the blow of the crisis on developers.
Developers were supposed to begin complying with the law from October 13 by filing detailed paperwork about their buildings, including the jointly-owned areas such as lifts, hallways and lobbies. They were also required to begin forming homeowner associations to handle the transition from developer control to the owners.
While few developers are fully compliant yet, according to lawyers and consultants, the Real Estate Regulatory Agency and the Dubai Land Department have indicated that fines could be levied against companies that have missed the deadline.
Stephen Kelly, a partner at the law firm Clyde & Co, said if a developer had not made "substantive steps" to submit the paperwork then the owners may file a declaration to the Dubai Land Department that could lead to enforcement action against the developer.
Meanwhile, the Oman Insurance Company, the largest insurance firm in the region, debuted a new insurance product aimed at the strata market on Wednesday. The policy was crafted to fit the requirements of the law.
Abdul Muttalib Mustafa al Jaidi, the chief executive of Oman Insurance, said earlier that 80 per cent of buildings across Dubai were underinsured or not insured at all.
Many of the major insurance providers in the UAE are coming up with similar products, said Mr Kelly. "There's a lot of work going on to introduce products like this," he said. "There is a need to increase coverage for many buildings."