Details

Al Mazaya Report: Seeking to adjust the real estate market’s progress is a collective responsibility involving governments and the private sector

 

Real estate laws and legislation must counter negative practices of some real estate brokers’

 

In this week’s report, Al Mazaya’s Real Estate Report addresses the fact that regional markets are increasingly struggling to bear the burdens of international economic pressures. Supply and demand indicators are no longer capable of accommodating continuous deviations and distortions relating to fair prices, which is starting to have tangible effects on market forces.

This situation has emerged amidst negative contributions made by some of the region’s real estate brokers, leading to “unnatural forces” in relation to supply and demand – a matter that makes it difficult to assess what is a fair price for available real estate units. Brokers’ ability to influence the volume of offered units, in some markets, means they are able to control the market and prevailing prices, irrespective of a market recession or economic boom.

This situation gives rise to risks on the current and future status of the region’s real estate market, which expects to handover projects to a value exceeding tens of billions of dollars, in the coming years. However, it has become evident, with further laws and legislation coming into force, the space left for negative practices to have any influence is reducing.

Al Mazaya Holding’s Weekly Real Estate Report points out that the overall influence of real estate brokers’ practices is moving in the reverse direction to the developments in laws and legislation recently passed by several governments – both in the region and internationally. As the cases of brokers’ negative practices reduce, through increased scrutiny over the nature of deals and contracts – in particular those produced by real estate exhibitions – we no longer hear, for example, that off-plan real estate units have been sold several times over with their prices doubling before their projects even come to be built.

In addition, laws and legislations related to real estate financing, enacted by the supervisory bodies, are placing further restrictions and limitations on the values and volumes of liquidity moving towards the real estate sector, thus setting further controls to avoid negative deviations. At the same time, finance networks have become more efficient in terms of calculating risks and revenues. Ultimately, this leads us to conclude that attempts to adjust the real estate market dynamic have become a collective responsibility involving both government bodies and the private sector. This includes the likes of developers and banks, with further transparency and stability in the real estate market assured by new and effective laws and regulations.

Al Mazaya’s Report points out that the most active real estate markets, in terms of new projects, high demand and real estate events, are those where brokers increase their activities and grow their ability to influence whenever demand for residential, commercial and investment real estate products go up. However, their ability to influence goes down where contracts and deals are executed at the level of real estate development companies or through reliable real estate companies with a proven track record in the field of real estate marketing, promotion and deal execution. This, in turn, leads us to believe that real estate markets are becoming more stable and will benefit whenever contracts and deals are executed via official frameworks and by official means. It is worth mentioning here that the ability to regulate the market and brokerage businesses depends increasingly on the end beneficiary, who is obliged to close the deals in official frameworks, avoiding violations. It has become difficult to track and fully control working mechanisms and tools of brokers given the development in the tools they use; this includes unlicensed brokers who often promote their available real estate units online.

UAE

This week’s Al Mazaya Report touches upon the move in the real estate market, in Abu Dhabi, to adjust the tempo of the real estate market and blockade brokers’ malpractices. At a time where the real estate market is going through a level of modification at the level of both developers and financing channels, it will now not be permissible to offer real estate projects for sale or offer projects in real estate exhibitions without obtaining the approval from the Municipal Affairs Department and opening an escrow account. In this context, the emirate is awaiting the application of a lease indicator before the end of 2016, which will set an average costing for rental units in housing areas. The indicator is divided into 237 points and would be binding to both the landlord and lessee. Judicial bodies will also rely upon the indicator, with the courts able to assess rentals based on the detailed information the indicator will provide.

Relying on and applying the measurements from the indicator and its outputs would put an end to the problems facing lessees who are often faced with substantial, unjustified increases in rentals – year after year. The indicator will also help investors designate areas to launch relevant projects. It is planned for this indicator to take effect following the complete enforcement of the real estate regulatory law. This law will regulate the activities of developers, brokers, real estate appraisers, and the registration of real estate units and leases.

Qatar

With the continuing rise of land prices in Qatar and continuing negative practices by real estate brokers in the country, it seems the situation remains static at the present time with violations of applicable laws neither declining nor increasing. It is worth mentioning that one of the key issues lies in real estate brokers intentionally dividing and subleasing villas to generate substantially higher revenues. While there are applicable laws in this respect, effective regulation of this phenomenon has been difficult and violations are spread across the majority of housing areas in the country. It is noticeable that the substantial rise in rents has fuelled this phenomenon, with rents for rooms in divided villas being deemed more reasonable for renters, compared to the prevailing prices of whole units. Al Mazaya’s Report further reveals that the country’s increasing population and limited construction of housing units – serving low-income segments – continues to fuel this issue. It is the opinion of Al Mazaya that the enactment of further lease-relevant laws and legislation is necessary in order to contribute to controlling this phenomenon.

Oman

In the Sultanate of Oman, Al Mazaya’s Report addresses the trends and indicators of urban growth in the country, with government bodies moving to impose further controls and pass a series of laws which regulate the operation of real estate brokerage firms. Much like the measures being introduced in other GCC countries, these procedures aim to limit and regulate the functioning of individual real estate brokers and real estate firms so as to protect the real estate market from illegal practices.

Under the application of the new laws, no individual or real estate firm will be able to practice the profession without obtaining a license from the official regulatory bodies. In addition, real estate brokerage firms will be electronically linked to the concerned ministry in order to monitor the firm’s activity, as well as serving as an observable indicator on demand and supply movements, across the Sultanate’s real estate market.

Conclusion

In assessment of the negative impact of malpractices carried out by real estate brokers in the region’s markets, there is universal agreement that laws and due diligence procedures are needed to maintain a properly regulated and fairly governed real estate market. That said, market indicators concur with Al Mazaya’s assertion that some real estate owners are dealing with brokers to close sale and lease deals, with the aim of saving commissions and expenses charged by licensed real estate brokerage firms; therefore, there is still much to be done to ensure fair practices are upheld. In response, Al Mazaya’s Report urges the speedy and strict introduction of laws and legislation to crack down on violations that inflict damage and harm upon both lessees and the real estate market as a whole.

Al Mazaya’s Report asserts that addressing the professionalism within the industry will help the market and maximise revenues for all parties. It will also highlight the necessity of creating appropriate controls for online marketing processes, which are largely employed by unlicensed brokers.

It is noteworthy that the series of laws and legislation already in force, in many countries in the GCC, have contributed to reducing malpractice and it is clear that the steps being taken in these areas are edging the region’s markets towards greater transparency, stability and growth. Of course, the real estate market can benefit from further controls and laws, with further monitoring and follow-up tools on all violations and negative practices offering the region a competitive edge for foreign capital seeking stable investments in stable markets.