Marota City: Countdown to Skyline

Marota City, the new district in Damascus destined to host modern real estate developments within a space of 2,149,000 square meters, may be a giant construction site at the moment. However, if a controversial law from 2010 has its way, the skyline rising over the Syrian capital may change within only a few years. With all the hype surrounding the Urban Renewal Law 10/2018 and its predecessor Legislative Decree 66/2012 slowly dissipating, it is an older and less known statute which predates the war that has seized the spotlight over Marota City – the Real Estate Development Law provided for in Legislative Decree 82/2010.

Marota City is becoming symbolically associated with post-war reconstruction in Syria as it is envisioned to be a modern urban district situated within the administrative boundaries of Damascus. Its proponents aim to present it as a pilot project to be replicated throughout Syria’s provinces. It was initially known as ‘Project 66’ after Legislative Decree 66/2012, the Law to which it owes its existence. Before it was superseded by the Urban Renewal Law and applied to all of Syria, Legislative Decree 66/2012 provided that one or more zoned areas may be established by decree on land subjected to local planning regulations located throughout Damascus for the purposes of regeneration and development projects. The first zoned area to be created came to be known as Marota City, whose ancient meaning derives from the term ‘sovereignty’, and the other one is Basilia City. However, the current focus in Damascus today is on Marota City, which is nestled in an area known as Al-Razi between the Mezzeh Highway and the Southern Bypass that leads out of the capital.

A brief historical background concerning Legislative Decree 66/2012 and Marota City is beneficial. The objective behind the issuance of Legislative Decree 66/2012 was to initially carry out an urban redevelopment project in informal parts of southern Damascus, which included the Al-Razi area. It thus laid down zoning requirements for what came to be known as Marota City, a project whose master developer is the Governorate of Damascus, the local provincial authority in the capital. The passage of Legislative Decree 66/2012 in September 2012 followed clashes in certain suburbs of Damascus that came to an end in the summer of that year.

A few years after Legislative Decree 66/2012 was issued, Legislative Decree 19/2015 also followed suit. It permits local councils to incorporate companies to manage and invest their assets. Consequently, the first such company Damascus Cham Holding (not to be confused with Cham Holding) was incorporated in 2016 by the provincial authorities in Damascus with a share capital of SYP 60 billion. It is wholly owned by the Governorate of Damascus and the Governor of Damascus serves as its Chairman. Legislative Decree 19/2015 adopts the concept of corporatization, which restructures government-owned assets so that they are managed as if by a private company without the need to abide by restrictive public sector rules and regulations that apply to state-owned entities.

It must be clarified that neither the Governorate of Damascus, Damascus Cham Holding nor any other single entity owns the Marota City project as a whole. It should be borne in mind that there are other parties such as private individuals who own plots in Marota City with a desire to develop them. In fact, the Urban Renewal Law and the preceding Legislative Decree 66/2012 provide that pre-existing owners of the lands in the Al-Razi area shall have their proprietorships protected in Marota City although in the form of shares in the designated plots of land. Instead of being landowners, they technically become land shareholders so to speak. The system of land shareholdings in this respect is unique to Marota City.

In the case of Damascus Cham Holding, it has been contracted to build the underlying infrastructure works for Marota City in its entirety in return for shares in the development, which comprise 68 out of the 280 total plots. The plots do however differ in size to others. Damascus Cham Holding subsequently entered into joint ventures with private investors to develop these plots. By doing so, Damascus Cham Holding ceded a significant portion of ownership in each plot that became subject to a joint venture.

The joint ventures were incorporated into private joint stock companies whereby Damascus Cham Holding would contribute 49% of the share capital in kind by providing the underlying plots and its counterparty would fund the remaining 51% in cash to develop the envisioned real estate project. The granting of a majority shareholding and therefore control of the joint venture to a private partner is unprecedented in Syria for any entity whose ultimate owner is a public authority such as the Governorate of Damascus. It signals the desire of Damascus Cham Holding and by extension the Governorate of Damascus to grant incentives to their partners, including corporate control, to facilitate their investment in Marota City. It should not be taken for granted that this model of partnership will be replicated time and again in the future.

Since 2017, Damascus Cham Holding has signed several contracts of this nature. They include a contract with a leading Syrian investor worth SYP 150 billion to build and invest in three towers and five residential plots in Marota City. It has also reached an agreement valued at SYP 108 billion with an expatriate Syrian businessman based in Kuwait to invest in a mall and six buildings. The strategic partnership between Damascus Cham Holding and this investor is expected to be among the most significant in Marota City and will turn the development into the commercial center of Damascus, which will house homes, hotels, shops, restaurants, businesses, financial institutions and so forth. Another joint venture was signed between Damascus Cham Holding and a leading businessman from the pre-war era. The company’s sales center at the entrance to Marota City also hosts potential foreign investors such as those from China, Iran, Lebanon, Russia, the United Arab Emirates and so forth from time to time who show an interest in prospective joint ventures to develop other plots owned by Damascus Cham Holding.

In light of all these new planned projects, the Governorate of Damascus advised developers in Marota City, including the joint ventures in which Damascus Cham Holding is a partner, that they need to start applying for building permits and commence construction or face penalties contained in the Real Estate Development Law provided for in Legislative Decree 82/2010. Thus, herein lies the crux of the matter, a controversial piece of legislation that compels developers to start turning Marota City into a reality within a prescribed timeframe.

Legislative Decree 82/2010 was issued months before the conflict in Syria erupted. It is concerned with the process of real estate development and lays down provisions regulating the construction and sale of property units. The Law applies to areas zoned and designated for planning purposes by the various local councils throughout the country such as Marota City in Damascus. Despite the enactment of this Law, its provisions were more or less suspended during the years of the war as it was challenging to implement it effectively under such circumstances. However, the authorities are reviving its provisions and are applying it to Marota City specifically.

As such, it is essential to explain the key features of the Law and the conditions it imposes on developers in Marota City. The first point to note is that an underlying objective of this Law is an effort by the authorities to curb the number of empty plots within zoned districts. Hence, any owner or owners of a piece of land within a zoned area, not only Marota City, should be caught by the Real Estate Development Law and would have to develop it or face penalties. Nevertheless, due to the war complicating its implementation nationwide, the Law only has Marota City within its sights at the present time.

On this basis, shareholders in the plots of land in Marota City are required under the Law to apply for a building permit within a period of one year and become developers. If they fail to do so, they become liable to pay a fine amounting to 10% of the property value every year. If after four years the developer has still failed to apply for a permit, the relevant local council or municipality, which is the Governorate of Damascus in the case of Marota City, has the right to conduct a public auction on behalf of the developer and sell the property. The proceeds of the auction are then transferred to that original developer who failed to procure the building permit. In any event, it is expected that the government will relieve pressures on the current investors in Marota City by offering a grace period of at least one year and rather levy a 20% penalty for the following year if need be. If the developer does apply for a building permit, they must also provide a financial guarantee that is returned to them once it is established that they have executed the project in accordance with their legal obligations, which include building the façade, preparing the shared facilities and partitioning the relevant units.

After the developer acquires the building permit, the property must be built according to a timetable. The construction of a building with six floors must be completed within three years of the permit being granted. If the developer intends to increase the number of floors in the building, they are allotted an additional four months for each new floor but the permit shall not exceed a total period of five years. Failure to complete construction within the terms of the permit may result in an annual fine equivalent to 10% of the value of the property. If construction has not been completed after an additional period of two years, the project may be sold in a public auction.

When imposing a fine for non-compliance with the deadlines stipulated for in the Real Estate Development Law, it is not the actual market valuation of the property that is taken into consideration to determine the 10% penalty. Rather, the government has a record of its own valuations for properties throughout Syria. Given that the penultimate records of government-sanctioned valuations date back decades, they are no longer realistic figures since property prices increased substantially since then. However, the Ministry of Finance has sought to update them in anticipation of the issuance of the Real Estate Sales Tax Bill, a separate piece of prospective legislation concerned with imposing a one percent tax on the sale of immovable properties using the new valuations. To this effect, specialized committees were recently set up throughout the Syrian provinces to determine property rates within their respective areas.

As such, government-sanctioned valuations will be assigned to properties in Marota City. While they are not technically market rates, the figures commissioned by the Ministry of Finance are not that far off and can therefore be utilized accordingly. Since property ownership in Marota City is comprised of shares in a given plot, any penalties for delayed construction will be appraised against the value of those shares.

It is common for a property such as a plot of land to have multiple owners and this feature is prevalent in Marota City where numerous individuals share ownership in one plot. Furthermore, it is expected that disagreements will emerge among the owners as to what course of action should be taken. In such situations, the owners who hold 50% or more of the 2,400 shares in the property, which is the legal measurement for immovable property in general and not to be confused with the shares that are specific to Marota City, are permitted to apply for a building permit. Procedures are put in place to arrange a public auction to allow dissenting owners to be bought out by their counterparts who wish to undertake a development.

As a point of law, ownership in any property in Syria is calculated on the basis of 2,400 shares in every plot of land or real estate unit as per the provisions contained in the Civil Code. Therefore, if a plot of land or a real estate unit has two proprietors who own it equally for example, then each of them will be accorded 1,200 shares in that property. The legal position that every piece of property is comprised of 2,400 shares should not be confused with the system of land shareholdings in Marota City, which is a separate matter altogether.

The process of obtaining planning permission up to the point of securing a building permit has its own considerations. In the case of Marota City, the Governorate of Damascus has set up a specialized technical committee to approve or reject design submissions by developers which include drawings of the proposed development and other relevant documents. The approval of the technical committee is the first step in the process to obtain planning permission for a project in Marota City. If the technical committee approves a design, it will grant the developer a no-objection certificate to initiate the process to acquire a building permit and other approvals from the concerned authorities including the Engineers Syndicate.

The technical committee is not imposing a list of controls as to what specifications the features of a tower for example should conform to but rather is granting developers significant leeway in formulating their own creative designs, which is a departure from previous practices within Damascus. As such the buildings in Marota City will be distinguishable from each other, which is not the case with the adjacent Kafer Sousseh district of Damascus for example that was constructed in the 1990s. The designs submitted to the technical committee so far resemble a Dubai-style skyline packed with towers some of which may have iconic status.

The Real Estate Development Law also sanctions off-plan sales of property units. Protections are put in place to safeguard the rights of buyers who purchase properties that will be built in the future. However, the contract between the buyer and the developer must be registered in the Interim Land Registry located at the relevant local council for a fee amounting to 0.1% of the sale price. In the event the developer fails to complete the construction works within the legal time limit, the buyer may appeal to the local council to penalize the developer with a fee equivalent to five percent of the value of the property every year for a period of two years. If the developer does not comply with their obligations within the two-year period, the local council may carry out the required works and claim payment from the developer in addition to an extra 15% for administrative expenses. Once the property units are suitable for handover to the buyers, the latter have one year to ensure that they are habitable or they may face a fine equal to 10% of the value of the property. Since the bulk of developments within Marota City are expected to be comprised of towers, it is anticipated that off-plan sales will receive meaningful attention.

It is these provisions of the Real Estate Development Law that are currently being applied to Marota City. Developers are now said to be moving forward with their projects in an attempt to avoid or mitigate the unwanted consequences of this Law. Construction works have already commenced on one such project. Unless exemptions to certain provisions of the Law are considered, Marota City may start seeing light within a few years irrespective of the projections for profitability calculated by developers. After all, they do not want to risk losing their project in a public auction if they can fend off such a possibility.

Obvious questions still remain for developers and observers alike such as whether there are enough interested buyers for the property units anticipated to be built. Syrian expatriates who can afford to purchase summer homes for example are visible targets for sales pitches in Marota City as are resourceful local and foreign property investors who have an appetite for speculation. Even though foreign investors can own numerous properties in Syria by incorporating companies to purchase them, lawmakers may need to reconsider restrictions in the Foreign Ownership Law that limit the ability of foreign nationals to buy more than one property in their own names and which additionally constrain their desire to bequeath the said property to their heirs. It cannot be presumed that every foreign purchaser of multiple real estate units will form a company to overcome these potential obstacles even though 100% foreign ownership of companies is allowed in Syria. It may be the case that legislative amendments to this effect will be required to make investments in Marota City a more lucrative affair for foreign buyers.

In spite of the uncertainties, it may be the skyline over Marota City in the years to come that slowly answers the many questions being asked regarding this project, which arouses curiosity both in Syria and abroad. The Urban Renewal Law caught the attention of many observers more so for political considerations than any other reason, which led the Syrian Law Journal to attempt to set the record straight by explaining its legal provisions in an earlier post. Regardless of the hype surrounding the Urban Renewal Law, it is the Real Estate Development Law that should generate similar if not more interest. It may very well be the deciding factor that transforms Marota City from a series of conjectures into an urban reality inside the city of Damascus, thus symbolizing the end of a horrific conflict and the start of reconstruction. However, only the deadlines the Law imposes on developers will tell. The countdown has begun.