Banks and property firms in Dubai are renegotiating contracts and litigation cases are mounting as the global financial crisis hits the once-booming real estate sector, partners at an international law firm said on Tuesday.Ashley Painter, partner at Clyde & Co's Middle East financial services unit specialising in banking and finance, said his company was dealing with dozens of cases.
"Anything that is not completed I think would be under some form of negotiation. It depends, of course, which developer you are talking about..." Painter told the Reuters Islamic Banking and Finance Summit in Dubai.
"They are looking to give haircuts to the sub-contractors so that the cost of building the things is going down... They are renegotiating the payment terms with the borrower..." he added.
"We are dealing with numbers of them, dozens."
"The level of litigation we are seeing, especially in the construction sector, suggests that there are bills that are not being paid," said Peter Hodgins, partner at Clyde & Co's Middle East financial services unit and expert on Islamic insurance.
The Dubai government said in February it had paid all outstanding obligations for public sector infrastructure projects after a short delay.
Malaysian engineering firm WCT Bhf and Dubai's Arabtec Holding are seeking at least $460 million in compensation after their contracts to build a racecourse in Dubai were cancelled.
Both firms are initiating a civil suit and arbitration proceedings against the developer Meydan over an alleged breach of contract for cancelling the deal.
Whether companies decide to sue, try to renegotiate contracts out of court or cut their losses and wind down their business, cases can be complicated by the lack of a paper trail, the lack of sophisticated bankruptcy laws and the fact that developments were financed by pre-selling units off-plan.
"In this part of the world the end user actually financed the construction... so it is more complicated...The great thing about the banks is that they are often linked to the Dubai or Abu Dhabi governments so they can get more deposits."
UAE bankers and central bankers say liquidity is returning but Islamic banks tend to have more exposure to the real estate sector because their products are linked to physical assets and they tend to shy away from litigation or arbitration, placing the onus on agreeing in good faith, the partners said.
"Their costs of funding can be quite expensive... A lot of the deals have to do with real estate and it is no secret that real estate has taken a dive... and they are looking to see how they can manage their exposures," said Painter. (Reuters)
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