Redefined RERA roles reinforce Dubai real estate
Real estate reforms are underway in Dubai, guided by the principles Sheikh Mohammed has articulated on various occasions. New laws have been ratified to alleviate challenges for end users, and to create greater clarity for developers and investors alike. Being at the helm of Dubai’s real estate affairs, the Real Estate Regulatory Agency (RERA) and Dubai Land Department (DLD) have a significant hand in the implementation, enforcement and regulation of such laws. The latest, Law No. 4 of 2019, redefines the respective roles of RERA and DLD, thereby rendering obsolete the long-standing Law No. 16 from 2007. Among other vital areas, the new laws concern escrow accounts held by developers (1).
Considering end users constitute the main source of real estate demand, regulatory bodies have adopted a customer-centric approach to real estate regulation. This is evident from recent initiatives in facilities management, financial bonds and mortgages. In the face of ever-changing global circumstances and challenges this throws up, the real estate sector in Dubai has fared relatively well. Despite this, Sheikh Mohammed has talked about room for improvement in the finer nuances that influence the market. One of the most pragmatic aspects to prioritize, within this context, is the need to ensure that the roles and operational purview of regulatory bodies like RERA and DLD are well defined.
The new law
As per the ordinance of Law No. 4 of 2019, RERA is deemed a public institution, which operates as a subsidiary of DLD. In keeping with the new law, RERA’s objectives will include boosting Dubai’s real estate market within an integrated system of monetary and regulatory procedures, and aligning it with national economic goals. Technological advancement and innovation have been emphasized under the new law, which entrusts RERA with the task of promoting this approach in upcoming projects. Providing security for real estate transactions and upholding ethical standards in the industry remains paramount.
In collaboration with the Dubai Real Estate Institute, RERA will hold public awareness campaigns to educate and inform stakeholders about the rights and responsibilities of regulatory bodies. In a bid to curb misleading and fraudulent claims, the new law empowers RERA to monitor and check the veracity of advertising and promotional material. In what can be perceived as a redistribution of responsibilities, DLD will now replace RERA in rental affairs. DLD will be involved in aspects as varied as registration of rental contracts to defining tenancy guidelines for owners and tenants, as well as handling many other issues related to rental contracts.
As established previously, responsibilities that concern escrow accounts are a highlight of the new law. RERA has been assigned the task of overseeing and regulating escrow accounts in the real estate sector. The regulatory body will appraise, accredit and qualify financial institutions, before they can manage such accounts. In the case of jointly owned properties, RERA will retain the right to introduce and update policies regarding their management. Chairman of the Executive Council of Dubai, and Crown Prince, Sheikh Hamdan bin Mohammed will appoint the CEO of RERA.
Although escrow accounts have broad applications, they are particularly in use within the real estate sector. In its most basic form, escrow is a practice by which a third party holds a sum of money on behalf of transacting parties. With origins tracing back to the U.S., escrow accounts became mainstream with the rise of mortgages in real estate, which posed a requirement for a non-partisan entity to safeguard money related to ancillary payments – such as property taxes and insurance. In the event of discord in a mortgage arrangement, escrow entities can exercise the right to auction the property, provided such provision was agreed upon beforehand by all parties involved. Based on regional interests and market-specific demands, various types of escrow accounts have been in practice. And although escrow-related activities in Dubai have been under RERA’s jurisdiction so far, the new law elaborates and redefines the regulatory responsibilities, leaving no room for doubt.
The redefining of RERA’s escrow responsibilities is particular significance in the light of Property Finder’s estimate that 20,978 residential units were added to the market in the first half of 2019, and an additional 38,426 units from 152 projects were at least 85% complete in July, with delivery expected by the end of the year (2). Against this backdrop, a consequent demand for escrow services is obvious. It is in the best interests of developers, investors, buyers and financial entities that the escrow framework is well regulated and RERA’s roles are clearly defined.
As an old adage goes, a building is only as strong as its foundation. This is true of the sector at large as well. Sheikh Mohammed’s move to reinforce and define the powers and responsibilities of RERA and DLD will pave the way for more empowering initiatives in the future, as well as streamlining the interactions of all stakeholders and administrative bodies.