RERA To Tighten Noose On Off-Plan Properties
In the past few years, Dubai real estate witnessing oversupply — amid dismal demand, new properties have been entering the market. This situation is now set to change.
Keeping in mind the mismatch, the Real Estate Regulatory Authority (RERA) in Dubai is contemplating measures to tighten the supply side. The authority is reportedly concerned about the growing off-plan sales wherein buyers are booking properties in projects which are in the initial stages of development.
Considering the risk involved in investing in off-plan projects, the authority is considering enforcing a condition where real estate developers will be allowed to sell their off-plan projects only when 50 per cent construction work is complete, say sources.
If this condition is applied, it will significantly reduce the off-plan sales in the market. In addition, the authority has already implemented the condition for developers to provide the bank guarantee for 20 per cent of construction funds, plus an additional 10 per cent guarantee bond signed by the contractor responsible for construction.
These stringent conditions are introduced in order to minimise the risks in case a project does not reach the completion stage. Also, these conditions are making the developers all the more careful before launching a project.
Traditionally, it is seen in many other real estate markets in the world that developers launch a project at off-plan or pre-launch stage, and then raise funds from investors to begin the construction. However, this practice has resulted in several project failures as many developers could not manage to take their projects till possession stage.
The steps by the authority will go a long way in protecting the interests of real estate buyers in the UAE market.
With the authority tightening the noose on new supply, the overall demand and supply condition is going to improve automatically. In 2017, more than 30,000 residential units were supplied in the Dubai real estate market while there are several projects which are scheduled to be completed before Dubai Expo 2020.
Of late, the Dubai real estate market has shown burgeoning interests from the end-user segment which is trying to tap into softened property prices and favourable market conditions.