Sunday, January 09, 2011

A real state

“Far back in the mists of ancient time, in the great and glorious days of the former Galactic Empire, lies a small, unregarded yellow sun.” So go the words of Douglas Adams.

The ancient town of Redditch (where needles and Enfield motorcycles originally came from) in Worcestershire (where the sauce comes from) was, in the 1970s, developed into a New Town. A quango was formed, and the employees of this New Towns Commission played SimCity at 12-inches-to-a-foot scale before SimCity had been invented. Redditch sprawled, and later a lot of these New Towns Commission houses were purchased from the NTC by their tenants. Meanwhile, tenants of council houses elsewhere in Redditch bought their properties from the local authority at well below market rates.

Unusually, perhaps, most properties were sold with 99-year leases and nominal ground rent instead of actual freehold, as is more usual for houses in the United Kingdom.

So far, so good. I bought my ex-council house from an owner-occupier with 89 years remaining on the lease and a known obligation to pay £17.50 per year for 33 years, £35.00 per year for the next 33 years, and £66 per year for the remainder of the lease. These figures were enshrined in the title deeds. There were also rules concerning exterior woodwork being white, not leaving cars up on bricks in the front garden, and no playing of Dueling Banjos.

Redditch Borough Council eventually grew tired of chasing and administering the ground rent. After writing to the leaseholders with “Would you like to buy the freehold? It’s a nominal couple of grand plus legal fees,” the council gave up and simply wrote to everyone with a “You are now the freeholder. Congratulations” letter. This occurred shortly after I’d sold my house, such is the Law of Sod.

Unfortunately for owner occupiers, the title deeds for ex-NTC properties did not include limits on the ground rent. And thus, when the NTC disbanded and sold all its freeholds to private developers, the first thing they all did was to whang up the ground rent to thousands of pounds per year. That’s right: £17.50 became £1000, and all houses subject to this usurious rise instantly became completely unmarketable, and the occupiers were, in numerous cases, left unable to foot their unexpected bills.

And so we jump into a police box and find ourselves in Dubai some ten years later.

The allure of buying freehold property in Dubai instead of paying rent was strong. A guaranteed residence visa so I could live there even if I lost my job; known mortgage payments instead of escalating rent. But when I asked to review a draft contract for a place in the Gardens, (or was it the Greens, Lakes or Springs?), alarm bells started to ring. There was nothing to prevent the nine dirhams per square foot annual maintenance charge from becoming Dh12. Or Dh25 or even Dh9999. Bearing in mind what I’d just seen happen in the tightly-regulated UK, what could I anticipate happening in a new and exciting property market in the middle east? Sure enough...

    Promises of tennis courts, fitness centres and swimming pools become more towers;

    The promise of visa with freehold evaporates;

    New rules regarding pets are imposed retroactively;

    Freehold is redefined as usufruct;

    Ground rent/maintenance charges soar.

What a perfectly marvellous way to kill the real estate market.

“Everything is proceeding as I have foreseen it.”


1 comment:

Gnomad said...

I remember some years ago, when I was still resident in the Gulf, you predicting exactly this when these "freeholds" first became available.

Can you now suggest six numbers for for next weeks lottery draw please?



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