Bahrain to ban off-plan sale of properties
Manama, May 27, 2014
Developers of multimillion-dinar real estate projects in Bahrain will soon be banned from selling properties "off-plan" to customers.
They will only be able to sell completed properties thanks to a new law approved by the Shura Council yesterday (May 26), said a report in the Gulf Daily News (GDN), our sister publication.
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.
Developers could seek approval from the government to sell off part of a project before it was finished, but permission would only be 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 31-article law was approved by the Shura Council, but six articles were referred back to the public utilities and environment affairs committee for amendments.
MPs have already approved the bill and will have to vote again on any amended articles, but it could be referred to His Majesty King Hamad for ratification before the end of next month.
Under the law developers would be allowed to promote, advertise and announce private developments, but would no longer be able to sell people "thin air".
The six articles up for amendment relate to escrow accounts that developers would be obliged to open for each project they are involved in.
The law forces developers to deposit all of the project's funding, including loans from banks, into an escrow account up front.
Developers of existing projects that have stalled will be obliged to comply with the law within six months of it being enacted.
"The escrow account will continue to exist after the completion of the project in case buyers of apartments, homes, properties or any part of the development complain they have not been presented with a high quality finished product worth the value they paid," said Municipalities and Urban Planning Affairs Minister Dr Juma Al Ka'abi.
"The escrow account will see them compensated or their money refunded completely, from 5 per cent that will be kept aside.
"The account ensures that work will go ahead.
"Bahrain has already faced several projects being stalled halfway through development and this law also covers them, since it will oblige them to come under it within six months."
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 ($26,374).
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.
"We have received complaints from some real estate developers that the law in some areas was not going in the right direction," said Shura Council chairman Ali Al Saleh.
"So we will put six articles on hold for a few days until we receive feedback from the Bahrain Property Development Association.
"The law, which is the first of its type in the region, is comprehensive and takes into consideration the government's role in protecting the public and ensuring that developers are able to carry out intended projects."
Association chairman and Diyar Al Muharraq managing director Aref Hejres told the Shura Council that developers would have to offer a guarantee that work would go ahead, either the plot of land earmarked for development or 20 per cent of the construction value.
"We want the end user to be protected and for that have asked for this to be inserted within the law," he said.
"Unlike what was said about us, that we want to run things without the law, we think an organised sector means more business for us.
"For four years we have been working with the government and legislators to push it through." - TradeArabia News Service