End one-cheque rent system in Dubai, experts say
DUBAI // An overhaul of the emirate's subletting industry is required if Dubai is to avoid a repeat of recent rental scams that have affected thousands of tenants and landlords, experts say.
In September, two agents from Marks Falcon Real Estate and FHS Properties fled with half-yearly rent payments amounting to at least Dh80 million, handed to them by as many as 7,000 tenants.
In August, Haitham Al Kouatly, chief executive of Shamyana Entertainment Services, siphoned at least Dh6 million in annual rent from at least 130 tenants, plus quarterly payments from about 350 tenants.
The Real Estate Regulatory Agency (Rera) has since outlined government plans to increase fines and ban property companies found guilty of breaking the emirate's rules. It also asked residents to check their landlord's title deed and broker's registration, and register tenancy contracts under their Ejari scheme to avoid similar fraud.
"Rera's plans are good but these are reactionary measures and what we need to put in are preventive measures," said Ludmila Yamalova, a managing partner at legal consultancy HPL Yamalova & Plewka JLT.
"We need an offensive instead of a defensive strategy by removing the incentives to cheat."
For starters, she suggests government support monthly or quarterly rent payments instead of the prevalent single cheque for a 12-month lease.
"These scams were unique to Dubai. This would not happen in the West because the practice of paying up front with one-cheque does not exist.
Paying monthly highly reduces the chance of scamming in the western world and if a company tried to, the most he could scam would be one month's rent.
Shahram Safai, a partner at Afridi & Angell legal consultants, believes the focus should be placed on brokers' liability.
"That is the place to focus because within this transaction the only professional is the broker. Brokers need to know that the regulator is watching and they may have to pay the price."
There are 6,000 brokers and 800 real estate firms with 117 companies with sub- leasing licences in Dubai.
Rera fined 22 real estate companies Dh900,000 in July for registration violations.
Ms Yamalova takes Mr Safai's suggestion a step further, saying real estate firms should not be permitted to sublet or accept payments from tenants, but merely act as brokers.
"A lot more is needed with the first being that brokers should be just brokers and not allowed to rent," Ms Yamalova said.
She said estate agents were required to conduct due diligence, and recommended that brokers' commissions only be paid after all documents including the title deed were submitted to Ejari.
Kimberly Kosterno was among the victims conned by Haitham Al Kouatly.
She and her fellow victims, including engineers, teachers, bankers and media professionals, have appealed for more transparency from Rera along with campaigns to publicise questions residents must ask before signing lease agreements.
"There is nothing to warn you on arrival in Dubai," she said. "Most people will accept it when someone presents you with what appears to be a genuine contract."
Mr Safai supports the idea of workshops to educate the public.
"Some blame can be attributed to tenants," he said. "That's unfortunate but it's a truism you cannot get away from.
"They must understand there are rights and obligations on both sides and this could happen when you don't follow the law."
Updated: October 7, 2012 04:00 AM