New committee established to refund investors in failed projects is expected to improve confidence
A decision to create a legal committee to help return money to investors in cancelled developments could help improve confidence in the Dubai property market, according to analysts.
The decree issued by the ruler of Dubai, Sheikh Mohammed bin Rashid Al Maktoum, on Tuesday establishes a legal committee to liquidate cancelled property projects and settle related disputes, including paying out investors who have struggled to get their money back from developers.
CBRE head of research Matthew Green said the problem of investors losing their money in cancelled projects had darkened Dubai’s reputation among investors.
“It’s probably a situation that has been hanging over Dubai in terms of its ability to attract new investment,” Green told Arabian Business. “The fact we have had investors who have bought into projects in the past and have never seen a project developed or any compensation for a cancelled project.
“As we get into the new growth cycle I think it’s something investors will be very keen to see in place.”
On Tuesday the International Monetary Fund warned the Dubai government may need to intervene in the present property market recovery to prevent another boom-and-bust cycle, with prices rising about 35 percent in the year to June.
During the previous boom, countless projects were announced but were postponed or cancelled – either partway through construction or before work had begun – when the market dramatically dropped in 2008-09.
Many sites have sat idle for several years, although not all affected projects have been officially cancelled and some developers claim frozen projects, such as Palm Jebel Ali and The World, will still go ahead.
Real estate lawyer Joe Durkin said there were thousands of potential cases for the new committee but warned investors may not get back all of their money.
“In nearly all cases of cancelled projects there will be insufficient assets to pay all creditors or investors,” Durkin, who is a partner at Davidson & Co, said.
“Investors will be interested in understanding what will be the general order of distribution of assets. For example, will investors who have an arbitration or court judgment in their favour rank in priority of payment to other investors, who may or may not have claims against a developer?”
“It will also need to be addressed as to how cases which are currently sub-judice are addressed by the special committee.”
Head of commercial sales and leasing at real estate company Better Homes, Sandrine Loureiro, said the initiative was “long overdue” and although investors may not get back everything it would bring some closure.
Returning the money could free up funds for other projects.
“Some investors may choose to re-invest monies received into completed real estate, others may not. Still, in the long term this step will clear up years of frustrations for many, which will be good for confidence in Dubai real estate investments," Loureiro said.
“Additionally, as a city, Dubai needs to complete its master communities. Stalled and cancelled projects can be re-positioned and new opportunities will arise from the space being liberated.”
Green said it was not clear whether the committee would hear cases relating to partly constructed buildings, which would be much more difficult to rule on.
“This situation will be a bit more difficult to resolve because we have already had money spent on the development and then it’s more of a case of is this project on hold or is it cancelled?”