Dubai Land Department launches official draft of Real Estate Developers' Governance Charter

Developers given one year to train staff and adjust to the requirements of the charter
90 days to test, audit, measure companies' response to the charter before proceeding with the implementation mechanisms
Registered real estate professionals required to implement the governance charter by early 2013
World Bank, International Finance Corporation (IFC) and International Corporate Governance Network praise the charter draft
Three-stage scheme for charter implementation: Trial, training and execution

Dubai, United Arab Emirates, 3 October 2011 - The Dubai Land Department (DLD) has officially launched the world's first Real Estate Developers' Governance Charter draft with the blessing of His Highness Sheikh Mohammed bin Rashid Al Maktoum, UAE Vice President, Prime Minister and Ruler of Dubai. The charter proposal is part of 9 initiatives launched by the Department and viewed by His Highness during his recent visit to DLD's headquarters and pavilion at Cityscape 2011 which concluded last week.

The new initiative was launched during a round table gathering in the presence of DLD Director General Sultan Butti bin Mejren, CEO of Dubai's Real Estate Regulatory Agency (RERA) Marwan bin Ghalaita and DLD Senior Director of Real Estate Development Department Mahmoud El Buri. The event was also attended by a host of local and international media representatives.

Through the implementation of the governance charter, the department seeks to achieve a qualitative leap in the performance of real estate developers and increase the transparency of the market. The step also aims to attract foreign investments, raise the level of confidence and enhance the efficiency of real estate companies. As per the charter, companies are to disclose details regarding their activities, progress of their projects, financial solvency and ability to manage quality and risk.

"Since Dubai ranked first in the MENA region's Real Estate Transparency Index, the Dubai Land Department has exerted sincere efforts to produce the governance charter draft for real estate companies. We believe in our goal to become to a global real estate reference as per the 2014 strategy, which requires the introduction of unprecedented global practices," said Sultan Butti Bin Mejren Director General of Dubai Land Department. "We have managed to carefully formulate corporate governance standards tailored for real estate companies. Other countries apply international standards on corporate governance in general," he added.

For the purposes of preparing the draft, the department has set up a drafting committee of renowned professional members who carefully studied and reviewed global governance practices prior to the introduction of governance standards tailored to fit the real estate sector.

The committee held several meetings and professional workshops for five months with 100 leading personalities including developers, appraisers, brokers, lawyers, investors and representatives of the property owners' associations. The committee also conducted a survey for developers and investors to gain more insight about their companies' infrastructure, aspirations and expectations. The goal behind such step was to engage them in the drafting process and identify their view regarding corporate governance standards in real estate sector activities.

Bin Mejren expressed pride in the positive response the draft has received from the World Bank, International Finance Corporation (IFC) and International Corporate Governance Network; an essential review from senior officials in renowned international institutions.

Marwan bin Ghalita, CEO of RERA said: "The lack of an established culture of governance in the market in general and in the real estate market in particular, necessitates the application of the charter on three phases. First is educational and experimental. The second is training and coordination followed by enforcing implementation."

According to bin Ghalita, the first phase will last for three months starting from October till December in order to disseminate knowledge and educate real estate companies using a series of seminars and workshops by Dubai Real Estate Institute (DREI), the educational arm of the DLD. During this stage, the draft charter will be examined and reviewed to identify the views of companies and understand the impacts of such charter on the market prior to putting the final touches on the implementation mechanism before approving the final draft. This phase will also see the enrollment of companies' staff in training courses at DREI, starting from November 2011 and continue throughout 2012 to infuse knowledge about the charter implementation.

The second phase, which continues throughout 2012, allows ample time for preparations by companies to meet the charter's requirements and implementation mechanism. The third phase of obligatory implementation will be effective January 2013.

Bin Ghalita added that the Dubai Land Department has no doubt that the real estate will promptly respond to this charter that benefits all parties in the sector. The charter is expected to enhance foreign investments in the local real estate sector, enhance transparency and corporate confidence while dealing with financial institutions and other relevant official and semi-official entities.

"Developing and strengthening corporate governance practices is a prerequisite for protecting property rights, attracting and ensuring the loyalty of investors, developers, brokers, lawyers and managers of property owners' association in addition to residents, consultants and stakeholders from other entities. This will surely boost confidence in Dubai's real estate sector," bin Ghalita said.

Mahmoud El Buri, DLD Senior Director of Real Estate Development Department expressed confidence that the implementation of corporate governance best practices on the companies and projects level will result in promoting confidence in Dubai's real estate market. "Mature markets require professional development and implementation of the principles of corporate governance. This has motivated the Dubai Land Department to develop frameworks and infrastructure of the regulatory framework for corporate governance to enhance the sector and meet global best practices in this area," he said.

"We are fully aware of the needs of real estate companies, property developers and evaluation companies to follow a more transparent approach and to commit to honesty in the reports and the prices they offer. Given the importance of the real estate sector internationally, the corporate governance plays an important role in attracting local and international investors," El Buri added.

He pointed out that an extensive education campaign is being prepared to promote the development of the regulatory framework for corporate governance in the real estate sector through induction sessions aimed at informing all stakeholders on the latest developments and how to apply corporate governance framework standards.

"Real estate corporate governance in Dubai focuses on seven standards or criteria developed by a team of professionals who organized several meetings with senior officials in major real estate companies operating in the emirate's market in order to communicate and conduct in-depth discussions and dialogues to enrich the process of drafting such criteria," El Buri said. "Along with this draft, the team also prepared a charter of honor for real estate companies. Signing this charter will be the first step in applying the standards of corporate governance," he concluded.

The seven criteria, on which the corporate governance charter is based on, are:

1- The existence of a board of directors in the companies tasked with running the company. Also, the availability of clear details about the shares of board members. In addition to clarifying the mechanism of electing them and their approach to run the company and its resources.

2- Companies must have quarterly audited financial reports to clarify the financial position at a specified date and to provide financial information about the company summarized in the certified financial reports to help shareholders, investors and policymakers in receiving such information. The most important of these financial reports that must be provided by the company's accounting system within the corporate governance framework are: financial statements, specialized reports for board members who are running the company, in addition to special reports of projects undertaken by the company and the reports related to regulatory responsibilities or controls related to investment, capital, manpower and others.

3- Best practices for transparency in announcing the company's activities in the real estate market and the size of projects and details of its contracts with partners or investors or contractors, or other related parties. This requires the company to be fully transparent in announcing sales, progress and other related news or dealings.

4- Company's commitment to the Charter of the ethics of the real estate development.

5- Company's ability to manage, measure and evaluate risks and develop management strategies in this regard. Such strategies shall identify, measure, control and reduce risks facing the company or the organization.

6- Company's ability to manage the quality and commit to management approach to recognize and meet the needs of the investor as well as the acquiring the means to manage the company to enhance its effectiveness, flexibility and competitive position on the scope of work as a whole

7- Company's requirement to allow DLD to audit its accounts and conduct technical auditing.

The Dubai Land Department and its educational arm DREI signed agreement of cooperation with the Hawkamah Institute for Corporate Governance aimed at improving corporate governance within the real estate industry in the UAE. The agreement reflects the commitment of signatories towards improving the corporate governance regulatory framework and implementation of the same in real estate sector.

Leading governance standards include:

- Requiring companies to disclose details regarding the size of their projects, progress, contracts and market sales.

- The ability of the developer to compete and manage the quality. In addition to recognizing and meet the investor's needs.

- Provision of quarterly financial and accounting reports to reflect the financial position of the company and its under construction projects

- Enabling DLD to financially audit the company's accounts.

- Election of company's boards and provision of lists of members' quotas

- The company's ability to measure, evaluate and develop risk management strategies

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