Dubai Property Wrongs
Posted by 7starsdubai on November 9, 2008
original published Gulf Business
Real estate investors are crying foul over project delays and cancellations. While developers blame surging inflation, the regulators are rolling out new laws to make the market foolproof. But is enough being done, asks Seban Scaria.
Dubai-resident Manish Kumar was looking forward to moving into his own studio apartment in a plush tower next to the Emirates Road in July this year. After all, he had been diligently making his payments to the Saudi developer behind the project for a full two years.
Delays being the norm, not exception, in Dubai construction, he was disappointed to learn that that date would be missed. But nothing prepared him from the shock of finding out the company hadn’t even started building the tower, and, was instead cancelling investors’ contracts.
Local and international investors had purchased off-plan units in the 20-storey Ivory Towers project by Saudi-based Sokook Investment Group. Launched in 2005, the project was supposed to be completed by 2008, but the development began to show the proverbial cracks last February when Sokook told investors to stop paying their instalments due to a dispute with Tecom, the master developer of the International Media Production Zone.
The scandal has been making its way through the local media, with deadlines being set by the Real Estate Regulatory Agency (Rera) for the company to start construction.
However, with the November 1 deadline for construction to start just round the corner, the 40-strong group set up by investors to safeguard their rights is not satisfied by the answers from either Sokook or Rera.
Sharon Anderson, an Australian investor, had booked two studio apartments in the Ivory Towers project back in 2003 and had paid Dhs218,000 ($59,390), about half of what she owed in total. Sharon, along with her brother and sister who also had invested in the same project, is now demanding answers, and is clinging to the hope that her money isn’t completely lost.
Hers is becoming an alarmingly familiar tale. According to experts work on more than 150 projects across the GCC is currently on hold. Gulf projects valued at $48.4 billion are either on hold or have been cancelled, according to Proleads. They include at least 88 projects in the UAE, 54 in Saudi Arabia and 15 in Kuwait.
Although Dubai real estate regulator Rera has directed the Saudi based Sokook Investments to reinstate contracts, issue a new payment pattern and deliver the building by 2011, Prakash Parmer, one of the several investors in the Ivory Tower project, who had already paid 60 per cent for a one-bedroom apartment, is still not clear whether the company will complete the construction.
Engineering a scam”This is a clear scam.
The developers trying to scare small investors into liquidating contracts for trivial sums, saying they might lose their investments as the project is delayed due to surging raw material prices. This is happening when Rera clearly states that cancellations are illegal,” says Parmer.
“Ivory Tower was initially designed to be 12 floors, but now they have redesigned it to have around 20 floors. The developers clearly don’t want to start construction but to make money based on the off-plan selling model,” he says.
Earlier, Rera said action would be taken against master developers and sub-developers if they fail to meet contractual obligations. Rera has dismissed reports that Sokook has cancelled the contracts. According to Rera, it has mediated the issue between Tecom and Sokook.
Investors, however, question Rera’s stance. “If Rera can tell us how much funds remain in the escrow account it will be a clear indication of whether Sokook can complete the project. Also, why is Sokook sending us fresh contracts with no penalty clause when Rera clearly states that cancelling a project is illegal?” asks Parmer.
Gulf Business took up the matter with Rera, but the regulator failed to reply to repeated queries from this magazine on the investors’ woes.
Surprisingly it is not only the low profile builders who are playing the elusive game or delaying projects.
Leading developer, Schön Properties had to stop work on its Dubai Lagoon Project, tossing investors into a pool of pain and dilemma. Twenty-five out of 2,000 investors, whose properties were due for completion in December, have been told they can have their money back. Schön later said that in spite of previous problems, Dubai Lagoon, a residential development near
Dubai World Central, is back on track and would be delivered, albeit with a delay.
According to the developer, the project has engulfed with several problems, including work being delayed because of requirements by Dubai’s Roads and Transport Authority (RTA), issues with contractors and the blocking of a work permit. “The RTA wanted to take 45 metres off our land for the Metro’s Purple Line. So, we had to redesign the whole project,” says the company.
To protect its margin, the company has decided to sell the remaining plots at higher prices and the whole development is due for completion by 2011, as the project’s budget was more than doubled due to the rising construction and raw material cost.
Pumping up confidence
While most of the constructors blame the surging prices and non-availability of raw materials such as cement and steel for project delays, manufacturers insist materials are freely availabile in the market. Besides rising cost of materials, the other reasons usually cited for putting projects on hold are: delays in approving designs, design changes and disputes between contractors and developers.
With complaints from investors soaring, Rera is now under pressure to add a shot of the much-needed confidence to the market. The regulator has issued a new property law, requiring all off-plan units to be registered with Dubai Land Department, which is expected to make Dubai’s real estate market a safer place for people to invest their cash.
Dubai has also moved to calm concerns over the rapidly growing mortgage market, where central bank data shows that mortgage lending in the UAE jumped 55 per cent in the year to March, with Dubai responsible for the lion’s share. A new mortgage law, which comes into effect by the end of the year, stipulates that mortgage contracts be registered with the land department, specifying the size of the loan, the repayment period and the value of the property to which the loan is linked.
Research conducted by Colliers International, in the second quarter, in Dubai and Abu Dhabi highlights that by 2010, almost 160,000 new residential units are expected to be delivered in Dubai, with total office supply in the emirate expected to increase to 4.9 million sq m. Also, the number of hotels and hotel apartments is expected to cross 50,000 units by then.
In Abu Dhabi, an additional 100,000 residential units will be required by 2010 to absorb excess demand and as many as 140,000 additional units are expected between 2011 and 2013, assuming developments are completed on time.
“Dubai is certainly a safer place to invest than it was three years ago. There has been a sustained focus on introducing new laws and developing Land Department procedures with a view to achieving an appropriately regulated and transparent real estate industry. We would expect this trend to continue and, with the introduction of the new property court, a level of confidence to return to the market in due course,” says Will Grinter, Legal Consultant, Clyde & Co.
© Gulf Business 2008
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