Recouping Dubai property investments is hard to say the least
It has been two and half years now since the global financial crisis brought many of the United Arab Emirates' construction cranes to a screeching halt. Some have lumbered back into action as the shock waves permeating the real estate sector begin to subside, but the recovery of market momentum is slower than developers may have hoped.
Speculative buyers have pulled out, adding to the financial woes of developers, while serious investors and potential homeowners this summer were still looking at sand pits of construction sites where nothing, or token activity, was going on -- yet they were still being asked to pay instalments or given the run-around when they demanded compensation from non-delivering developers.
Having lost anything from a couple of hundred thousand to millions of dirhams, many are fighting what seems like a losing battle for the property to be built or their money to be returned.
"Many investors by now have given up trying," said Ludmila Yamalova, managing partner of HPL Yamalova & Plewka JLT. "Some have simply resigned [themselves] to wait and see; others have walked away. Among those who are still trying, the sentiment is grim."
According to her, developers may seem to be softening up, but in reality are just buying time, refusing to compromise while maintaining their projects are going ahead.
"They blame the global economic setback or master developers' delays in infrastructure as force majeure," she added, remarking that what is further infuriating is the fact that developers have started handing over projects years late, yet are outright refusing to offer any meaningful settlements or discounts to account for delayed handovers. According to Yamalova, this is further compounded by developers persistently requesting continued payment of installments, with the usual threats of penalties for late payments, as well as additional fees for things such as registration, service charges, various deposits and so on.
The readiness to manage disaffected buyers' post-crisis demands depends on the individual developer and their financial situation. The more experienced and committed developers managed to keep most of their 'real' (rather than speculative) buyers on board by showing determination to complete projects, offer consolidation, discounts and revamped payment schedules.
"We have worked very closely with all of our buyers and have been as flexible as possible in assisting them through this difficult period and have achieved good results," said Wayne Holder, executive vice-president of Sales, Marketing, and Customer Relationship Management at Pearl Dubai.
Like other developers in the UAE, Pearl Dubai saw its schedule dashed by market conditions, rising construction prices and liquidity squeezes, but the project's first phase will be completed as promised by end-2013, the developer said.
Similar assertions are issued regularly by key players such as Nakheel, Emaar Properties and Deyaar. However, major companies would not comment in August when asked about their latest achievement updates on arrangements with buyers, saying that the responsible officials were not available at this time.
New safety nets too late for some
Nowadays, before launching any off-plan sales, developers have to prove they can finance 20 percent of construction, or have already done so, according to Dubai Real Estate Regulatory Agency (RERA). For those developers who have been caught in the crisis without plans for financial contingencies, the ability to pursue compromise solutions with their buyers goes only as far as the funds they have left, or can raise, for continuation of construction activities.
One of those buyers was Munsif Molu, who bought a property in Ajman four years ago, paid up 70 percent, and has no building to show for it. Delivery date was June this year. The developer's website is off-line while in the office only two assistants remain. Ajman's Real Estate Regulatory Authority (ARRA) has blocked the developer's license, as it failed to provide documents for the Escrow account.
"I visited ARRA, but they don't seem to have an answer for me that makes sense, sending me back to the developer. So, I am basically stuck in this loop. When I write to the developer they refuse to acknowledge receipt," Molu despaired.
Another investor who has struggled to recoup funds she put in to developments is Maria Carballo. She invested in projects in both Abu Dhabi and in Dubai, with only the latter handed over, albeit two years late. Carballo recalls having to pay unexpected charges to the developer, as well as prolonged construction interests to the mortgage provider.
Her property in Abu Dhabi, also under a mortgage, is not materializing as planned. Carballo said that after talks with the developer resulted in a threat to cancel her unit, she decided to take court action, joining an investor group with a lawyer handling hundreds of similar cases to share costs and speed up court procedures. Although class action -- the pooling of cases into one, thus sharing court costs -- is not permitted in the UAE, collective action can put more pressure on the developer. In Carballo's case it worked; she started legal action about a year ago and recently won a settlement.
"It is nerve racking and expensive. Many are afraid to go to court as they don't trust the laws, but in Abu Dhabi at least I can say they seem to function. Even in Europe verdicts take many years to come through," she said.
In Dubai, chances for a successful verdict are elevated if RERA cancels a project officially, though this has not always been a rapid process. "Under the Dubai property law the project cancellation should lead to a refund of the investment," said arbitrator and chartered surveyor Adrian Camps, the managing director of Fine & Country Professional Services real estate firm in the UAE.
Last year, the Dubai Government filed an updated bond prospectus at the London Stock Exchange, indicating that 307 property projects of 980 registered projects were going ahead, and put another 495 on the cancellation list.
Camps said that he is aware of RERA cancelling around 200 projects, but the numbers seem fluid. "I tried to discuss those with RERA but no one seemed to know anything about it and the status of having a 'project on hold' was not explained," he said.
A similar uncertainty surrounds court cases, where there are an estimated thousand cases still being mulled over in the Dubai Property Court. Yamalova explained that there is no repository of information, public or private, of court judgments and the courts do not publish their decisions -- a lack of transparency that irks claimants and their lawyers.
"The only way to find out about them is from the [plaintiff or defendant] to the case, most of whom, in turn, are very reluctant to share," she said. "Many of the cases where victories are heard about are being appealed and lost and may now be on the way to the final appeal stage. Therefore, it is virtually impossible to determine how many cases have materialized and the nature of those judgments."
If one has the resources, filing a case may serve as leverage to drag the developer to the negotiating table, thereby mitigating the costs of full legal proceedings, added Yamalova.
"Some investors have been successful in recouping all or most of their investment," reassured Camps. "A delay of over three years with construction at less than 50 percent completed increases investors' chances, unless the developer has relied on force majeure provisions in the contract."
In his view, arbitration could be a more favorable route than going through the courts. Procedures are often in English and can be cheaper, while strict rules ensure fairness and impartiality. Yamalova agreed that arbitration is often a more viable route, though "investors must have realistic expectations and be ready to accept a compromised solution," she added.
Although RERA posts project progress reports on its website, disputes often get stuck on the interpretation of "construction progress", and expert arbitrators are often appointed to deal with these technical issues. The sales and purchase agreement usually carries a contract clause establishing where a dispute can be heard; if it does not, the courts are the default.
Whatever the end result, the award needs to be enforced through the courts, and Camps believes that the process of enforcement will be soon simplified when the UAE Arbitration Law comes into force, as it will standardize rules for arbitration throughout the emirates. The Real Estate Conciliation Committee at the Dubai Land Department (LD) aims to facilitate this process and to reduce the burden on the Dubai Property Court. It promises faster results, with a resolution in as quickly as a month. Potential cases have to come with a land department report before proceeding to court.
Investors, however, need to be aware that winning is not an automatic payment receipt. Many developers have run out of money trying to stay alive since the onset of the crisis and therefore have nothing left to return. Developers may own land and other assets but first these have to be liquidated, which depends on whether they are sellable.
Carballo has reached the court of execution, where the judge orders payment, but her lawyer alerted her that it could take years before she sees her money. "I can live with that, because the longer it takes, the more interest the developer will owe me," she said.
© Executive 2011
