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As Dubai's property market makes a remarkable turnaround since the outbreak of the global financial crisis, many in the real estate sector say the rebound couldn't have been possible without the government's timely intervention. The Dubai Government has shown a great sense of attentiveness, introducing a series of new regulations, including a mortgage cap and transfer fee hike, that aim to rein in speculation in the market. There are more stronger legislation in the pipeline.
Real estate brokers were partly blamed by experts for the realty market crash in 2009, while lapses in property laws, which many think weren't stringent enough, also contributed to the property bubble.
Role of brokers
The unprecedented rise in property prices during the years preceding the downturn was partially attributed to greedy real estate brokers who were placing their own interests ahead of their clients and the industry in general. To address the many issues in the real estate brokerage industry, the Dubai Government introduced new regulation and used methods similar to those adopted by other developed countries.
The move was critical because of the growing number of unregulated property brokerage firms in Dubai, reaching around 8,000 at one point with about 10,000 brokers. Most of these firms had to close down after the recession, bringing down the total number to 2,205 real estate firms and 5,021 brokers.
"We saw 567 new firms setting up business this year and we believe the numbers are still high for Dubai," says Marwan Bin Ghalita, CEO of the Real Estate Regulatory Authority (Rera), on the sidelines of last month's Cityscape Global in Dubai. He says the government will introduce four new measures next year to regulate brokers and maintain high standards.
Many in the industry agree there are far too many real estate services companies in Dubai and this in itself will bring different challenges, particularly in maintaining the quality of service.
"We need to be more regulated, but the public also needs to be educated about the role of the agent," says Mario Volpi, Managing Director of Prestige Real Estate, adding that there are far too many people working in real estate who do not have a firm understanding of the business. "This in itself is damaging the profession and the professional agent's livelihood.
"Finding ways to gain new business is also always difficult for agents especially when they are faced with restrictions preventing certain practices."
Volpi was among the participants of the Real Estate Brokers Summit held concurrently with Cityscape Global. The summit deliberated on issues relating to property laws, best practices and procedures to counter- act a saturated brokers market among others.
As part of measures to improve professional standards among brokers, Rera said it will be revising the passing mark of the mandatory test for the renewal of a broker's licence from 75 per cent to 85 per cent. The exam was introduced in June, although the new law will come into effect in April next year.
Industry experts say it's critical to have qualified and well-informed agents in the market to avoid misinformation that could mislead customers.
"The real estate industry needs better-qualified and trained real estate agents," says Sam Wani, General Manager of Independent Finance. "We will need to put in place more comprehensive training programmes and trainers. Real estate agents will also need training on the basics of mortgage financing, money laundering and financial planning.”
Many real estate firms are also acting proactively, putting in place a stringent process to screen brokers.
"I think agents and brokers need to be accredited," says Christopher Taylor, CEO of Abu Dhabi Finance. "Clients now have access to more information [through price comparison websites and supermarket-style financial sites]. Therefore, lenders, brokers, agents and developers need to raise their game when it comes to service and product quality."
Jean-Luc Desbois, Managing Director of Home Matters Mortgage Consultants, is of the opinion that property transactions should be done through independent professional conveyance firms or lawyers/solicitors, similar to the system adopted in the UK and Australia.
"There are several large real estate companies promoting in-house conveyance services, which are handled by unqualified staff:,. Says Desbois. "These services should be completely independent from the real estate companies, as it can create conflict of interest."
To eliminate fly-by-night operators, Wani believes the formation of the credit bureau is a big first step. “This will help lenders identify who to lend to," he says. "We also need to create a qualification regime for professionals dealing with real estate and mortgage lending. This will weed out unqualified, fly-by-night operators.”
However, the biggest challenge for brokerage firms is training such a large number of brokers.
"There are simply too many brokers and in consequence the majority of brokerages cannot invest in ongoing training and development of agents," says Cecilia Reinaldo, Managing Director of Fine and Country, a London-headquartered real estate agency with offices in Dubai. "Public communication and education about laws and regulations is the key.
"Brokers must be required to undertake ongoing training and representation of the seller and buyer needs to be clear throughout, with proper documentation and legal responsibility."
To control the high number of brokers in Dubai, Rera said it will initially limit broker visas to four per brokerage. The renewal and issuance of additional visas will be linked to performance - if brokers are not able to close any transaction within six to 12 months, their registration will be cancelled.
Rera will also replace broker ID cards with Emirates IDs as part of a new smart system, which will be able to track the activities and performance of agents, including when they change employers. The move is expected to help ensure only licensed brokers operate in the market.
In a busy marketplace where numerous projects are being launched and marketed by thousands of property agents, customers are often bombarded with a sea of information, and much of it is repetitive and fictitious. Therefore, providing reliable data is another key challenge.
"With so many projects being launched and Dubai enjoying attention from investors and businesses worldwide, the residential sector will benefit greatly," says Renan Bourdeau, Deputy CEO of Propertyfinder.ae.
"There is bound to be a significant rise in the number of jobs being created, with both buyer and rental demand increasing as the population grows. Hence. the need to provide accurate information to people will increase."
Bourdeau says the market is non-exclusive, which means that one owner can list with numerous agents.
"Hence, it can be frustrating for users to see the same property listed by multiple agents," he says. "So it is essential that prices are right and content and images are accurate.
"If you have a good listing with accurate prices, good images and truthful descriptions, ifs a win-win situation for all parties."
The responsibility of providing accurate property information has to be shared by developers and brokerages. Developers need to supply truthful information to agents, who in tum need to ensure that their listings are accurate. Agents should also ensure that they do not post properties that are already sold or rented.
Many industry experts suggest having a system to filter out or scrutinise information being disseminated to the general public.
"I would like to see better policing of the portals as the same property could be listed by 20 different agents, with 20 different prices," says Nadia Butt, Managing Director of Lannhill Real Estate. “This leaves the buyer to think there is an oversupply of property and the seller to believe that there are more buyers than there really is."
The problem, she reckons, could be solved by assigning properties exclusively to certain agents. Butt believes this will also help provide better services.
"I think the high number of agents today creates more competition, which is healthy. but in order to enhance consumer experience and ensure we accurately sell the vision of Dubai to people who want to invest or move here, we need agents that have better product knowledge and provide better customer service," she says.
Butt applauds government initiatives such as eMart, which she thinks helps create more transparent and genuine listings. The portal was created by Dubai Government for real estate professionals to list properties for sale and rent in Dubai.
“Online portals need to take more responsibility and work on eliminating fake listings and have better control what content is posted on their sites,” says Butt. "Dubizzle has limited the number of free ads one can post and Propertyfinder has introduced a quality control team, which is a step in the right direction.”
Volpi says property descriptions would do well to fall under a similar legislation such as the Property Misdescriptions act in the UK, where makes any misleading statement about a property a crime.
Another challenge investors face is the ability of due diligence on properties being purchased. It is difficult for investors to conduct an independent appraisal of the property and to ascertain ownership of the property or any restrictions affecting it.
"In more mature real estate markets, it is also possible to look up issues such as potential exposure to costs due to changes in infrastructure, whether property is contaminated and confirmation as to whether any works have been undertaken on the property for which there are in place warranties that need to be passed on to the investor," says Sallie Bowtell, Partner at Trowers and Hamlins, an international law firm.
Since there is less likelihood that any of these additional certificates would be introduced in the UAE in the near future, Bowtell says the investor will have to rely solely on information from the developer or seller.
"This makes it difficult for investors to make informed investment decisions, meaning there is still a relatively high degree of risk when investing in the UAE," she explains.
Volpi suggests policymakers should encourage industry experts and stakeholders to collaborate in creating a think tank that would advice the government on new legislation, rather than unilaterally imposing changes that could sometimes miss the mark.
Nonetheless, the majority of industry players are happy with the progress Dubai has made. They believe the emirate is moving towards the right direction in terms of introducing suitable legal infrastructure to increase investor confidence and achieve a higher level of transparency.
"This is still a developing market and one that is increasingly able to compete with developed markets in attracting foreign investment,” says Bowtell. "Change will continue to be introduced, albeit on a staged basis.
"In my view this is necessary to ensure maximum acceptance by all players in the real estate market."
Check out The role of legislation in real estate growth in the UAE
Source: Syed Ameen Kader, Special to Property Weekly