New restrictions on developers to protect investors
Manama, June 10, 2014
Developers of multimillion-dinar real estate projects will not be allowed to carry out work unless complete plans are presented to concerned government bodies in Bahrain.
The Shura Council yesterday approved a new law designed to protect investors, said a report in the Gulf Daily News (GDN), our sister publication.
Those embarking on new projects will have to provide value estimates calculated by an engineering firm and ratified by the Engineering Practices Regulatory Committee, start and completion dates, as well as designs and artist impressions.
In addition, they must deposit 20 per cent of the project value with the Municipalities and Urban Planning Affairs Ministry, have a bank account in the project's name and sign an agreement to waive five per cent of the deposit in the event of future compensation appeals.
The Shura Council last month approved a proposal to ban developers from selling properties "off-plan" to customers.
It aims to prevent a repeat of the Marina West fiasco, in which hundreds of private buyers invested millions in a proposed property development that was never completed.
As a result, developers will only be able to sell completed properties, although they could seek approval from the government to sell off part of a project before it is finished - with permission only being granted following a field assessment.
It is the first law of its kind in the region and is designed to protect buyers while boosting investor confidence.
The full 31-article law was approved by the Shura Council yesterday and referred to parliament.
Council public utilities and environment affairs committee vice-chairman Faoud Al Haji said the new additions were designed to ensure projects do not stall.
"We have seen cases in which some projects have been stopped or work ended," he said.
"We don't want a repetition of that and we have come with new insertions as guarantees.
"Only completed plans and necessary documents and assurances will allow the Municipalities and Urban Planning Affairs Ministry to issue a licence, otherwise the project can't go ahead."
Under the law, developers would be allowed to promote, advertise and announce private developments, but would no longer be able to sell off-plan.
Developers will have to open escrow accounts for each project they are involved in and the law would force developers to deposit all of the project's funding, including loans from banks, up front.
Developers of existing projects that have stalled will be obliged to comply with the law within six months of it being enacted.
A commission will also be formed by the minister to look into real estate disputes, comprising two judges and senior government officials, while developers who break the law could face jail.
Those caught selling properties off-plan without government permission could be jailed for up to a year and fined BD10,000 ($26,243).
However, anyone caught selling off-plan properties in a bogus development could be jailed for up to five years and fined up to BD30,000.
Government officials, engineers or auditors who sign off on false projects would receive the same punishment. - TradeArabia News Service