Nakheel Dubai Government controlled developer presses buyers for cash
Posted by 7starsdubai on 2009/08/21
source The National 20. August 2009
Nakheel is asking investors using credit transfers for property purchases to top up their payments with cash, as it seeks to raise funds ahead of a mid-December due date for a Dh3.5 billion (US$953 million) bond.
According to brokers, the Dubai Government-controlled developer allows investors in delayed projects to sell their downpayments to other investors who have already invested in other Nakheel developments.
But now the company is no longer allowing customers to use credit transfers alone to fund instalments, and is demanding that part of the payments are made in cash, brokers say.
“For example, when a buyer has Dh1m to pay, Nakheel would say you need to pay 30 per cent in cash, which makes Dh300,000,” said one broker, Farid Ahmad Hussein.
“They will accept a credit transfer of Dh700,000 from somebody else. The investor can get this Dh700,000 maybe at 40 per cent discount now in the market from another investor. In total he has saved Dh280,000.”
Nakheel needs to pay back a Dh3.5bn bond on December 14, in what is being seen by international lenders and rating agencies as a litmus test of the Dubai Government’s willingness to support its affiliated companies facing financial difficulties.
So called “credit consolidations” were triggered by the collapse in property prices last autumn, which saw scores of developments either cancelled or delayed and effectively ended the “off-plan” property market.
Investors in stalled projects have been able to sell their downpayments, usually at a loss, to other customers of the same developer, and then those downpayments can be used on continuing projects. These credits can only be transferred between buyers that have already made downpayments and are not available on the secondary market.
Developers facilitate the transfer of credit between investors in different projects to generate funds needed to complete some developments, while also making it easier for them to abandon others. External brokers help to match buyers.
Unlike other developers, Nakheel requires the transfer of ownership between investors to be completed before credit is moved between properties.
“Investors in projects that have been deferred have the option of consolidation if they own other properties within the Nakheel portfolio. The advantage to the investor is that Nakheel is able to hand over property to the owner sooner than it might on a deferred project and help investors reduce their financial exposure,” Nakheel said in a statement. The developer declined to comment on whether cash payments were also required to complete property consolidations.
Nakheel has shortened the time it takes to complete such transactions to about a month, from three or four months previously, according to brokers.
Nakheel, the developer of The Palm Dubai, has spent billions of dirhams on projects that are still under construction, while adding further offshore island developments including The World and The Universe.
But development on such a massive scale has come at a high price for the company, which is now struggling to repay debts accumulated during the six-year building boom.
The trade in credit notes on stalled projects is helping revive activity in the property sector, according to Rajesh Sony, a director of Bluechip Real Estate. The firm, he said, generates 90 per cent of its turnover from matching buyers and sellers of credits.
“This is a win-win situation between the developer and investors. If all the investors of one project transfer the money elsewhere, the developer may call off the project without having to refund the money to investors. At the same time, investors can get out of the market without losing all the money, and other investors in ongoing projects can pay their instalments at a cheaper rate,” he said.
The exchange of Nakheel credit, or consolidations, began in February on projects that include the Dh4.4bn Dubai Promenade, and the Dh2.9bn Trump Tower, the centrepiece of Dubai’s original Palm Island development, according to Mohammad Mujtaba Vakil, a broker from Linkage Real Estate.
He said that while cash components were not requested on earlier transfers, Nakheel now “would not accept anything less than 30 per cent”.
angles said
I found your blog recently and have been visiting it . I think your way of thinking is good. keep up the good work.
Rammy said
Nakheel Should come clean with the hard working investors who made it what it currently is.
They should announce and without delay the Indeed they have canceled the Badrah II project, cause no way they will complete it in by end of 2011 and they can not extend the delivery any further.
So all they are doing is frustrating the investors and trying to push them to so called consolidation. This is just not acceptable behaviour from someone like Nakheel. They will lose so much turst than what they already have lost with the investors, it will simply stupid for Nakheel to continue with Badrah II and other off plans projects , no investor will be crazy enough to continue paying them any further instalments, why would they, when they can get for the same price a finished, larger property in place like JBR or Dubai Marina.??
Time for Nakheel and those who are running it to come clean and by honnest for a change.
Time for the Dubai Governmet to also get invoved.
In short Off Plans Projects Must be canceled ASAP and those who paid deposits should get a full refund.
The Dubai Government MUST force Nakheel, and other developers to come clean and do the right thing, because without expats investments, these developers will soon be history