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Thu 8 Jul 2010 12:09 PM

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Dubai commercial repossessions not seen for 12 months

Analysts say no immediate prospect of office sector following residential market.

Dubai commercial repossessions not seen for 12 months

The first repossessions in the Dubai commercial property market are unlikely to be seen for 12-18 months, analysts have told Arabian Business.

While the residential real estate sector has already seen the start of repossessions and contract cancellations, this has not yet been the case in the commercial sector.

In January Barclays won the first bank foreclosure orders in Dubai and last month Tamweel, Dubai’s second-biggest Islamic mortgage company by assets, won the right to repossess five homes after their owners left the country.

This month the Dubai Land Department (DLD) is set to hold the first public auction of repossessed homes and Dubai developers have already begun sending letters out to defaulting tenants warning them that they risk having their contracts cancelled if they do not keep up with repayments.

However, the same has not yet been evident in the commercial sector, Nick MacLean, managing director of global real estate consultancy CB Richard Ellis in Dubai, told Arabian Business.

“I think there are examples where payments were not being made and the [unit] has not been taken back by the master developer or the lender,” said Maclean.

“I think one of the reasons for this is that it is not in the interests of either of those parties to do it at the moment as [developers and lenders] then take it onto their own books and cannot let it or sell it.”

He said he believes that when the market recovers developers and lenders will begin to implement repossessions in the commercial sector, similar to what is currently taking place in the residential market.

“When the market picks up there will be an increase in the number of repossessions and seizing assets because then they will become more saleable in the market place,” he added.

This sentiment was echoed by Porush Jhunjhunwala, head of commercial sales and leasing at the Dubai-based Better Homes real estate agency.

“As of now there are many commercial projects under construction and we will see commercial defaults and repossessions only when these projects are nearing completion. We expect the market to remain flat for the next twelve to eighteen months,” Jhunjhunwala said.

However, oversupply in the market is likely to continue in the Dubai commercial sector and some analysts have predicted that it might not recover for at least another decade.

On Wednesday, a report by the Landmark Advisory research company said that the Dubai office market is set to increase by 91 percent between 2009 and 2014, with an extra 3.27m units flooding into the market.

The report estimated that the market may remain stagnant for at least another decade.

The retail market is also seeing a decline and has yet to even hit the bottom as a report this week by Jones Lang Lasalle (JLL) said that average retail rents in the emirate have fallen 39 percent to AED209 per sq ft since the second quarter of 2009 and average vacancies across regional malls have increased to between eight to ten percent.

However, the JLL report noted that sales revenues are expected to increase by around three to five percent this year, following a slump during the global economic downturn.

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VIJAY 10 years ago

RERA laws are totally in favour of the developers. Even if the Developer has not started construction, and the completion date is over, the investor stands to lose 25% of the paid amount, if he opts to cancel the Sales Contract. What kind of a law is this? On the other hand, we have paid 40% for D1 tower under construction, at Culture Village, the developer has completed 43% whereas the time taken to complete the project is 80%, handover end Dec, 2009, and it is most likely to take almost another 2 yrs more. The developer refuses to consolidate, reduce prices, nor give any discounts as per current market rates (like most other developers have done). Sales Purchase Agreement delayed by 2.5 years, and now no banks are giving loans. What are we to do? How are we to pay the balance amount Once the project went over 43%, (which is to be challenged ?), the developer opts for cancellation and forfeiture. Why did he not opt for cancellation 6 months back when the work in progress was less than 40%. ? Because he would not have got 25% of the contract value. !! We replied to RERA and they have passed a judgement favoring the developer, without calling us for any meetings etc. What kind of a law is this?? Can anyone explain to me what we are supposed to do ? Going to the court and hiring lawyers is an expensive affair, and time consuming. Pls advise. Tks and Regards

His Excellency Dr Paul 10 years ago

The moral of the story: 1. Don't pay deposits before you've seen the contract 2. Don't assume the contract doesn't matter because 'nothing will go wrong' 3. Understand the legal system and appreciate that laws can be changed without warning or consultation 4. Learn to recognize the obvious signs of a speculative bubble, and the inevitable consequences 5. Don't 'invest' (gamble) more than you can afford to lose

Errant 10 years ago

The only solution and most effective is to name and shame both RERA and developer o every single forum talking about properties. These guys dont understand the words: ethic, honest, etc... You have to hit them in the pockets and their credibility. You have to go after their companies in Europe or USA as class action is not allowed in UAE. If everybody unhappy with the situation acts like this, then you will see changes. people should also complain to UAE ambassies all over the world via local lawyers. This would be my advice and action plan if I were in your situation

Ali 10 years ago

Dear Investors u have made millions in this country with tiny effort, so its not fair to blame the govrnmnt who gave u everything and treat u like thier child. You have to suffer a bit ,If not u can fly back to ur country and relax. certain nationality were controlling the real estate market in dubai and they are paying back now. the Market will need 10 years more to yield up again. Be pacient and pay ur instulments.

Mounir 10 years ago

Yeah right!

Cash Flow Messiah 10 years ago

What institutions like Tamweel offered were Ijara agreements (islamic finance) which are basically rental agreements, not loans (technically). To say that the people that left UAE were the 'owners' of the properties is legally incorrect. It is in fact Tamweel that was always the owner of the properties and had only placed long-term lease agreements to the 'borrowers'. AB should be more responsible in such kind of reporting.

Joka 10 years ago

Dear Ali, Please go to grammar school and spare us your wisdom.

GVM 10 years ago

If some dummies have not calculated the risk in investing right, that's their own mistake for which they have to pay (most probably they received only British education...)! However, if some one is not happy, please pack your bags and go! The world is big and for smarties the opportunities are countless everywhere :) Good Luck!

VIJAY 10 years ago

Hi Saeid, Sorry to hear that you lost AED 300K and took the easy way out. If we all do that, RERA laws will be more and more in favor of the developers. A lot of people have lost money, as the laws are weak. RERA has to wake up and face the reality. If the developer delays the project, the law protects them. If the investor delays, the developer has the right to forfeit the property. RERA does not read your replies and just takes a decision in favor of the developers. We have to act together and fight out, so that the new generation of hard working investors do not have to face the same problem. To summarise, maybe there is no money in the escrow account to refund the investors. Has anybody heard of RERA decision favoring the investores and the money being refunded. ?? That will be the day, the markets will rebound, and the market sentiments pick up. Otherwise, forget about investing in Dubai for the next 10 years.

JK 9 years ago

Vijay, you are absolutely right..only when the investors see some protection, they will come back. The reason many foreigners invested on the first place was the changes that took place in the property law and immigration. Now this looks like a distant memory. I lost money in the residential property market and I don't even want to visit Dubai...not to talk about investing. Has somebody wonder why the visitors to Dubai are dropping, why all shiny shopping colexes are empty..why the metro has no passengers? Does somebody think that all these thousands of investors, their friends, relatives will ever visit Dubai or invest in the region?