Home buyers in stalled Dubai projects are unlikely to find the millions of dirhams they have paid into escrow accounts as many developers have already spent the money, says Ahmed Khalid Obaidat, the chief financial officer for the Real Estate Regulatory Authority (Rera).
"What I can tell buyers is, don't think what they have paid into escrow accounts actually exists," Mr Obaidat said. He said the problem is concentrated in payments made before a federal law established escrow accounts in 2007.
The escrow accounts - which are funds paid by buyers in unbuilt projects, and are supposed to be guarded independently - are a hot-button issue with buyers, who question how developers are spending money in dozens of stalled projects around Dubai. Many complain that developers have misused or absconded with the funds, which should be used to repay buyers.
Rera has launched its annual audit of the escrow accounts, but this year's exercise will have a twist - for the first time it is requiring developers to use approved auditors. In the past, developers could choose their own auditors.
The new rules will make the audits more trustworthy, Mr Obaidat said.
"Our main objective from approving project firms is to have more reliable audited statements and financial reports," he said. "We need a partner in the audit firm in this area."
Rera does not disclose specific results of the audits. Last year about 80 per cent of the projects complied, Mr Obaidat said. But the audits have discovered few problems, he added.
"The problem is the transactions appeared before the establishment of the law," Mr Obaidat said. "The problem was what happened before that date."
Before the law was established there was little accountability on how developers were spending buyers' money.
"The market welcomed" the law, said Paul Preston, the managing director of Elysian Real Estate. "Since the escrow accounts came in it has really helped the market."
The annual reviews focus on how much money was collected and how it was spent. Developers are forbidden from using the money collected on other projects or any expenses not directly related to the project. They can legally use the escrow money on construction, land costs, marketing and other legitimate project-related expenses, Mr Obaidat said.
Developers that do not file audits are liable for penalties of up Dh100,000. They may also be required to cover shortfalls in the accounts if the audit discovers inappropriate payouts.
Many buyers in Dubai believe they are entitled to refunds from escrow accounts on delayed or partially built projects. But developers are not legally required to return funds until Rera officially cancels a project.
Although Rera has established guidelines for declaring a project dead, developers need only show work is progressing to stave off cancellation. Some developers have refused to return funds by invoking the force majeure clause in buyer contracts, citing the economic downturn or problems with master developers as "acts of nature" to explain the delays.
Rera began requiring annual audits of the escrow accounts in 2008, following the mandate of the 2007 law. But the opportunity to choose their own auditors often added an extra layer of complexity.
"This year will be good communication between us and the developer," said Khalid Obaid Al Mutaiwei, the senior director of Rera's Real Estate Trust Account Development Department. "The communication will be easy."
kbrass@thenational.ae
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
The rules on fostering in the UAE
A foster couple or family must:
- be Muslim, Emirati and be residing in the UAE
- not be younger than 25 years old
- not have been convicted of offences or crimes involving moral turpitude
- be free of infectious diseases or psychological and mental disorders
- have the ability to support its members and the foster child financially
- undertake to treat and raise the child in a proper manner and take care of his or her health and well-being
- A single, divorced or widowed Muslim Emirati female, residing in the UAE may apply to foster a child if she is at least 30 years old and able to support the child financially
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MATCH INFO
Uefa Champions League semi-final, first leg
Bayern Munich v Real Madrid
When: April 25, 10.45pm kick-off (UAE)
Where: Allianz Arena, Munich
Live: BeIN Sports HD
Second leg: May 1, Santiago Bernabeu, Madrid
Day 5, Abu Dhabi Test: At a glance
Moment of the day When Dilruwan Perera dismissed Yasir Shah to end Pakistan’s limp resistance, the Sri Lankans charged around the field with the fevered delirium of a side not used to winning. Trouble was, they had not. The delivery was deemed a no ball. Sri Lanka had a nervy wait, but it was merely a stay of execution for the beleaguered hosts.
Stat of the day – 5 Pakistan have lost all 10 wickets on the fifth day of a Test five times since the start of 2016. It is an alarming departure for a side who had apparently erased regular collapses from their resume. “The only thing I can say, it’s not a mitigating excuse at all, but that’s a young batting line up, obviously trying to find their way,” said Mickey Arthur, Pakistan’s coach.
The verdict Test matches in the UAE are known for speeding up on the last two days, but this was extreme. The first two innings of this Test took 11 sessions to complete. The remaining two were done in less than four. The nature of Pakistan’s capitulation at the end showed just how difficult the transition is going to be in the post Misbah-ul-Haq era.
UAE currency: the story behind the money in your pockets
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Defence review at a glance
• Increase defence spending to 2.5% of GDP by 2027 but given “turbulent times it may be necessary to go faster”
• Prioritise a shift towards working with AI and autonomous systems
• Invest in the resilience of military space systems.
• Number of active reserves should be increased by 20%
• More F-35 fighter jets required in the next decade
• New “hybrid Navy” with AUKUS submarines and autonomous vessels
Honeymoonish
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UAE jiu-jitsu squad
Men: Hamad Nawad and Khalid Al Balushi (56kg), Omar Al Fadhli and Saeed Al Mazroui (62kg), Taleb Al Kirbi and Humaid Al Kaabi (69kg), Mohammed Al Qubaisi and Saud Al Hammadi (70kg), Khalfan Belhol and Mohammad Haitham Radhi (85kg), Faisal Al Ketbi and Zayed Al Kaabi (94kg)
Women: Wadima Al Yafei and Mahra Al Hanaei (49kg), Bashayer Al Matrooshi and Hessa Al Shamsi (62kg)
