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Tue 10 Jan 2012 10:55 AM

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Utility hold-ups crimp real estate handovers in UAE

Landlords bear brunt of vacant buildings waiting for power, water connections

Utility hold-ups crimp real estate handovers in UAE
Dubai construction

Utility delays are pushing back the handover of completed real
estate projects across the UAE, blocking landlords from leasing properties and
generating rental incomes, analysts said.

Difficulties in connecting developments to water,
electricity and sewage services are preventing the release of buildings – in some
cases, more than a year after construction has finished.

“Infrastructure delays are one of the primary reasons for
delaying handovers,” said Matt Green, head of research at property consultancy CBRE.
“If you look at Business Bay, about a year ago there were lots of completed
buildings, but no occupation. It’s a common trend here.”

The delay in the handover of new buildings has helped to
keep rents and house prices stable in the northern emirates, by restricting the
flow of supply, property broker Asteco said on Sunday.

The average rent for a three-bedroom apartment in Sharjah
ranged from AED35,000 to AED63,000 in the fourth quarter, and between AED35,000
and AED40,000 in Umm Al Quwain.

Sales activity for both residential properties and offices
were also limited throughout the year, Asteco reported, with many completed
buildings in Sharjah, Fujairah, Ajman and Ras Al Khaimah remaining empty due to
a lack of electricity and sewage systems.

Developers argue they are being slowed down because
authorities have not connected them, while utility companies claim the problem
lies with the developers, Green said.

“There appears to be slandering on both sides but without
any evidence to say who is in the right and who is in the wrong.

“It could be that the developer is using that as an excuse
not to hand over the units, especially if they’re lacking the final funds to
get their property to the completion stage, or if they have to make payments to
lenders upon completion.

“If you’re an investor… instead of being able to generate a
rental income from your investment you’re still paying off the bank without
receiving anything in return.”

The UAE has been home to the Gulf’s worst-performing real
estate markets since the onset of the financial crisis in late-2008 saw house
prices across the country plummet.

The value of construction projects scrapped or on hold in
the UAE soared to $958bn in the 12 months to October, Citigroup said last month,
signalling its battered building sector is still some way from recovery.

The Gulf country, which accounts for more than half of the
stalled or cancelled projects in the MENA region, saw $20bn worth of
developments added to the list over the last year.

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