By Shane McGinley
Analysts skeptical of plan to attract fresh investor cash to ‘viable’ developments
A scheme by Dubai Land Department aimed at attracting fresh investment to stalled real estate projects has been greeted with skepticism by analysts who warn buyers are unlikely to risk their funds in a still-falling property market.
State agency DLD this week signed a deal with Wasl Asset Management Group to identify suspended or offplan projects and offer them for sale or long-term lease to investors.
The Tanmia scheme aims to kickstart work on “viable” projects that ground to a halt in the wake of the global financial crisis, said Majida Ali Rashid.
“The the recovery of the property sector and protection of the individual or corporate investments are the priorities,” said Rashid, senior director of planning and institutional development at DLD’s real estate arm. “Necessary steps will be taken in regard of the liquidation of project, settlement of rights and legal obstacles and restrictions associated with the project.”
The backlog of unfinished projects is a legacy of Dubai’s rapid rise and fall. The emirate had the world’s fastest- growing property market from 2006 to mid-2008 because of rising demand from a growing expatriate workforce and speculation fuelled by borrowing.
Prices quadrupled in the six years following the 2002 decision to allow foreign ownership of property in designated areas.
With the onset of the global financial crisis, more than half of developments in the city were scrapped or halted as project finance dried up and developers ran out of cash.
John Davis, CEO of real estate consultancy Colliers Middle East, warned investors would be reluctant to consider offplan or incomplete projects in an already unstable property market.
“This trepidation… has arisen due to the number of [buyers] having been promised the delivery or handover of their investments or homes which has either been delayed or in some cases hasn’t materialised at all,” he said.
Tom Bunker, investment sales consultant at Dubai’s Better Homes, said there had been zero interest among investors in offplan units since the onset of the city’s property collapse.
“No one is interested in paying for any property that has not been handed over as yet,” he said. “Even properties from some of the larger, established developers are not moving until such time as they are handed over.
“While I believe trying to revive those projects put on hold could have some merit, there are a multitude of issues that must first be resolved with these projects and I would want to see how these are sorted before I get optimistic about investors coming in,” he added.
The Tanmia scheme is not the first of its type to be announced. A small number of investors have moved to buy up stalled developments at low prices, in a bid to take advantage of falling construction costs and low interest rates to complete and sell on the project.
In May, Dubai-based businessman Kabir Mulchandani launched property venture SKA1, to invest in projects deemed but viable but in need of bridging capital to meet their complete date.
“There are a lot of good projects out there and a lot of quality developers; I meet them all the time… [but] there is a lack of traditional capital. The banks are heavily exposed to real estate, here as well as globally,” he said.
“We come in and provide the capital, we work with the contractors to finish [the project] and then we have our sales and marketing team that can resale it once it is completed.”
In May, the firm had completed one deal for an AED300m building six months away from completion in Dubai Marina and planned to seek out further opportunities in the emirate.
Another addition to the long list of half baked schemes to talk up the Dubai Real Estate market!!!!
What will will get investors back is the following:-
a) Fair and transparent legal framework that protects and assures investor refunds from errant developers, unlike the laws that favour state backed developers
b) Clear residency intent and laws that will give a clear indication to foreigners and expats on whether or not they should plan for a long stay in Dubai
c) Reasonable and fair service charges unlike the rip off charges that developers are charging at will.
d) Decriminaliation of mortgage linked bankruptcy and delinquincy
Only when all of the above happen, can Dubai real estate get back on the 'desirable' list of investors. Anything else would be 'tinkering' with a broken car!
What will kick start the property market here in a jiffy is mortgages with realistic deposits and interest rates. Currently between high rates and absurd deposit levels that only people who have robbed a bank can afford, there is still no viable reason or means by which the middle class can own property. Its these middle class that were ignored during the peak that will rescue everyone but only if the market is brought within their means.
Most of Dubai's property owners have negative equity greater than 30% and will have to hold on to their property for the next 10-15 years just to break-even and the DLD has come up with a scheme that will make the over-supply of property even worse.
This plan does nothing to enhance the city of Dubai, it's reputation or it's property market. Until the Developers and DLD start looking out for the interests of the owner's instead of generating schemes to part them with their money there is no hope of a market recovery.
Reviving these projects using this scheme, means that they do not have to be cancelled because of lack of funds. No cancellation means no refund to original investors and just extends the delivery date without compensation.
DLD or RERA have been conducting an audit due to conclude this year as to which projects are financially viable to continue or not. Obviously the Tanmia scheme is now in the frame, because there are many many projects unviable because project funding has dried up and escrow is insufficient.
The only way to restore the level of trust demanded here is to let the courts award refunds to investors with lots of legal precedents set. Thus investors are confident that any reentry into a previously stalled project will result in their money back should it fail again.
Investors should request in contract guarantees:
Optional full refund + interest on failure to deliver on time or payment for every month late.
Investment at latest independently assessed market price
These should be cheap projects as they have all been sold previously to people who funded the construction to the point where the building ceased and the developers disappeared.
This looks like it may be a part of the push to have lower price property available in the Emirates, as announced by the government recently. The developers have defaulted, the purchasers have nothing to show for their investment and new purchasers will benefit from completion of partly finished buildings that are completed under thos scheme. What i do not understand however is how the original purchasers, who have been let down by defualting builders get anything back.
Jag these are reasonable requirements hard to believe they are not all ready in place. Where did this all go wrong there many templates for this industry around the world that work successfully.
I may be totally wrong, but what I have always heard is that apartments here were estimated to last 20 years and villas 25. If this is the case, I seriously doubt that prices in 15 years (with maybe 6-7 years left) will be any similar to what people paid. My understanding was that the interest for investors was on the rental income.
If someone can point the error or provide with an explanation I would appreciate.
Whether its Govt or Developer, spending their reserve on projects would improve the image just few points up. At the same time, pump few more units to the oversupplied market. Ok, I get my flat. What is next if i do not have anyone to occupy?
Instead, they can pull more mfg units and employees from other markets through promotional offers and incentives without loosing much of their reserve. Offers and incentives for newcomers are all about loosing income for few years. But completing projects drains left over reserve and devalue the property market further more.
Maybe, I am wrong and the decision makers have world renowned financial consultants to guide them. Hope, they take right moves at this point without draining their left over reserve on the taks with least recovery hopes.
Instead of reviving projects how about helping the investors who are stuck in limbo with projects that are moving so slow a snail could crawl faster. We aren't allowed to claim a refund as the project is in theory progressing, at a pace so slow I could build the place faster with my own 2 hands, yet it is yrs delayed but we get no compensation, this was the last straw for investors. RERA protects developers, we have a contract that states delivery should have been 2 years ago yet we get no compensation for delays. If my installments were late i would be penalised & forced to pay interest yet developers dont deliver and RERA allows it. I wanted a home to live in, I have paid rent elsewhere for 2 yrs & still have no home. Developers should be compensating for late delivery instead i get told to take the developer to court, which by the way will cost me 300,000dhs in lawyers fees, which i dont have as I need to pay rent elsewhere.
If RERA follow its own role of cancelling the project which have been promised back many years ago such as al attar development schemes (promised since 2004). The confidence will gradually come back to Dubai. Actions speaks much louder than words.
Just google " al attar investors" to see the level of frustrations by many investors.