A straw poll of business leaders in the region suggests that it took anything between one to three months for the contagion of the global financial meltdown to make its way from the epicentre, Wall Street in New York, to the warm shores of the UAE. Whatever your view on how, why and when the downturn actually happened, it doesn’t take an economist to understand the colossal collapse of the real estate markets around the world. In the months leading to September 2008, the warning signs had echoed in the UAE real estate markets. Too many developments, supply outstripping demand, and a market rife with speculators. Something was not quite in order and it was only a matter of time before the domino effect would drastically hit the upward trend which we had been experiencing for almost a decade.
A straw poll of business leaders in the region suggests that it took anything between one to three months for the contagion of the global financial meltdown to make its way from the epicentre, Wall Street in New York, to the warm shores of the UAE. Whatever your view on how, why and when the downturn actually happened, it doesn’t take an economist to understand the colossal collapse of the real estate markets around the world. In the months leading to September 2008, the warning signs had echoed in the UAE real estate markets. Too many developments, supply outstripping demand, and a market rife with speculators. Something was not quite in order and it was only a matter of time before the domino effect would drastically hit the upward trend which we had been experiencing for almost a decade.
Strata regime: On reflection, last year has been relatively quiet for the UAE real estate market, although there has been much debate about the future of existing developments and the concept of “strata”. Strata is a term used to describe ownership interests in units located in a multi-owned building or community, together with an undivided ownership interest in the associated common areas. Dubai issued a strata law in 2007 and subsequently issued specific directions in 2010. However, it has not been successfully rolled out into the projects in Dubai. There is still much uncertainty about how the strata regime will be implemented. And it remains to be seen whether the legislation is robust enough to stand the test of time.
Uncertainty continues to exist on which court has jurisdiction to hear legal proceedings involving former subsidiaries of Dubai World, most notably Nakheel. Creditors are still waiting to hear whether their claims will continue to be heard by the Dubai World Tribunal or will it be overseen by the Dubai courts. While there is some indication that the cases commenced before Nakheel became a government-owned company, new claims may have to be brought before the Dubai courts. Further confusion is lent to this by the recent enactment of a law in Dubai to broaden the jurisdiction of the DIFC courts. This allows parties who would have originally brought their cases to the Dubai courts to now have legal disputes adjudicated by DIFC courts, even if their business activities are not connected with the DIFC.
Superimposed over all of this uncertainty is the concept of sovereign immunity, which may exempt government-owned entities such as Nakheel immunity from claims being brought against them. The situation in Dubai may be contrasted to that in Abu Dhabi. There have been very few real estate developments there, while the most notable has been laws relating to tenancy contracts and the introduction of a new system to register leases with the Abu Dhabi Municipality. However, it is no surprise that 2011 ended without the introduction of a strata law in the emirate, although one has been in draft for a number of years.
What does 2012 hold?: It is hoped that 2012 will be a year to end the waiting game. Creditors will be wanting some clear legislative direction on which court has jurisdiction over legal claims brought against Nakheel and other former Dubai World subsidiaries since their separation from Dubai World. Clearly the Abu Dhabi and Dubai real estate markets are in different stages. Both will need further legislation to underpin any attempts to revive transactional activity and make them a viable proposition for international investors.
