The waiting game

With Dubai’s property market seemingly on the cusp of a new boom, Arabian Business speaks to the investors who fell victim to the emirate’s last real estate bubble
By Daniel Shane
Fri 10 May 2013 12:16 PM

It is a Saturday morning and in the shade of the Burj Khalifa there is screaming and shouting. Police have been called in to keep a lid on an angry mob as tempers fray and people shove each other out of the way in a bid to get to the front.

There are probably few cities in the world where a property launch can incite minor social disorder, but this is exactly what happened when Dubai’s Emaar started sales at one development in April.

According to data from lender Deutsche Bank, average property prices in the emirate rose for the sixteenth consecutive month in March. This has led to concerns that Dubai could be entering into a new real estate bubble, similar to the one whose bursting in 2008 led to a collapse in prices of up to 60 percent.

“We are concerned about the level of growth which we’re seeing, because it seems quite evident that there is speculation back in the market,” says Matthew Green, head of UAE research at real estate services firm CBRE Middle East. “We can see it with the recent Emaar launches, where they’ve sold out and lots of hype has been created.” This hype has been supercharged by the announcement of several new megaprojects, including Mohammed Bin Rashid City, which — when complete — will boast more than 100 new hotels and the world’s biggest shopping mall.

Worries about another bubble have been confounded by the activities of some investors, who have been seen advertising properties online at a mark-up of as much as 30 percent, only hours after making the original purchase. “We should be seeing [price] growth, but the flipping mentality appears to be coming back,” Green adds.

For some investors, all of these developments are eerily familiar, with many still reeling from the consequences of the last crash, which halted work on many of Dubai’s real estate projects.

One of them, Taimur Rana, did not consider himself a serious investor when in 2005 he purchased four properties at the Dubai Lagoon development.

The four one-bedroom apartments he bought at the residential community, which was to feature restaurants, a shopping mall and a man-made lake, were intended for his children.

The properties he bought were scheduled for delivery in 2007, but he is still waiting more than six years later, with Dubai Lagoon a half-finished building site. In the time since, he and his family have been forced to live in a rented property elsewhere in the emirate.

“I’m paying rent — AED115,000 for a two-bedroom apartment in The Springs. Over the cost of six or seven years I’ve paid nearly AED1m. It’s a complete headache for us,” he says.

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Rana says the four apartments he bought back during Dubai’s boom years cost AED2m altogether and he has so far paid AED850,000 — more than 40 percent — in instalments. He says he is scared to stop repayments in case Dubai Lagoon’s developer Schon Properties use this is an excuse for not completing work on his properties.

“At the end of the day if you don’t make the payments, they’re going to be the one who says ‘you’re the one who didn’t make the payments, so why should we make the buildings?’,” Rana believes. He is also worried about the escrow account into which his instalments have been paid. “We don’t know where that money is going — if it’s towards our building or another building [in Dubai Lagoon].  It’s one account for the whole developer.”

Rana says that Schon Properties is currently trying to persuade him and other buyers at the development into accepting modified terms for the original sales contract he signed on his properties, which would stipulate delivery in 2017. Rana is not convinced that even this target can be met though, with construction on its 55 or so towers apparently having come to a halt.

“Nothing is going on. Not a single guy is working on it,” he claims. “What they have right now is six or seven buildings [constructed] to the sixth or seventh floor. I don’t believe any words from them right now after the promises they made in the past. I don’t believe anything.”

Rana says that the recent raft of new project launches in Dubai has left a bad taste in his mouth and thinks that his experience should act as a cautionary tale to potential investors considering buying into Dubai’s new property boom.

“If they’re launching new projects, can’t they look at the projects that have already been launched six or seven years ago? What are they doing on that?” Rana says. “Even a new buyer who comes into the market is going to think ‘why haven’t the previous projects been completed?’”

Schon Properties did not respond to Arabian Business’ emailed request for comment on the situation at Dubai Lagoon.

Of all the megaprojects announced during Dubai’s heyday in the mid-2000s, The World was arguably the most ostentatious of them all. A man-made archipelago off Dubai’s coast, the Nakheel development is now largely deserted, with the islands still lacking much basic infrastructure.

One man who bought into this dream was Irishman Kenny Timmons. In 2007 he agreed to purchase an apartment on Thailand island’s luxury Jasmine Gardens project for more than AED2m. As of today work has yet to start on the development, despite Timmons having handed over half of the agreed price in the time since.

“They staged payments up to 50 percent and work never started on the island,” Timmons claims. “About a year-and-a-half ago RERA (Dubai Real Estate Regulatory Authority) wrote to me and told me that the project was cancelled.”

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Timmons has so far managed to secure a refund of 20 percent of what he handed over to developer Jasmine Gardens Limited, but is still seeking repayment of a further AED850,000 that he says he is owed.  “We’ve been chasing this for years, and not getting anywhere. Every door we’ve knocked on, we’ve been turned away.” Timmons says the last offer he received was 20 percent of the amount he is owed, which he has turned down, or full repayment in 2015. “I can’t take that offer because there is no guarantee, this company could be liquidated in 2015.”

Timmons says that his experience with Jasmine Gardens has tainted his view of the emirate overall. “Never in a million years [would I invest again],” he says. Jasmine Gardens Limited could also not be reached for comment.

Launched in 2006, Dubai Sports City was billed as a hub for major sporting events and tournaments in the region. Forming part of the broader Dubailand project, designs incorporated a 60,000 seat multi-purpose stadium, a golf course and sports academies, as well as residential and business premises.

Fast-forward to 2013 and investors claim that the development is half-built, with many plots abandoned and buyers left chasing non-existent developers in a bid to get their money back. Among the amenities missing from the masterplan include a shopping mall, tennis academy and numerous residential buildings.

“We only invested because of certain promises, like stadia, and infrastructure. We’re realistic — there has been a world recession — but it’s a bit of a mess,” says Christian Thorne, a UK national who along with his parents invested in residential property at the development.  “A lot of projects are either holes in the ground, or they’re skeleton buildings, which the developer or sub-developer will say is 70 percent [complete], but is actually about 40 percent completed.”

Thorne says that his own property was supposed to have been delivered in 2009. Its most recent completion date is 2018. He says that little construction work is being carried out on the site, with “one or two” workers simply “moonlighting”. Thorne adds that basic infrastructure, including functioning street lighting, pavements and shops, is also missing.

He is one of a group of almost 500 signatories who have put their name to a petition that was last year sent to the Dubai government. Among their requests are that the government halt subdevelopers at Sports City from demanding payments beyond those stipulated in original contracts; setting up a new escrow account for payments; and finding a way to mediate disputes between investors and subdevelopers that does not mean going through courts, which Thorne says is too costly. Despite delivering the petition twice, Thorne says he has yet to receive a response from the government.

All of these cases could spell gloomy times for investors if Dubai was to repeat the boom-and-bust scenario witnessed five years ago, but one expert believes that the financial system has matured since those heady days.

“The boom last time, every man and his dog was involved in it. You could go to the bank and get a 95 percent mortgage. It was accessible to all,” explains CBRE’s Green. “What we’re seeing currently is 70 percent to 80 percent of the market is cash buyers. The people with money are investing again and they are the ones that are profiting.”

While this news might reassure those considering buying into the next boom, it will likely provide little comfort to those who have had to wait five years or more for their investments to materialise.

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