Construction pay disputes to escalate in 2009 - lawyer - Construction & Industry - ArabianBusiness.com:
Delayed or non-payment of contractors by developers for work already undertaken will become a key issue in the first six months of 2009 due to a slowdown in the construction sector in Dubai, a partner with law firm Clyde & Co said on Monday.Mark Blanksby, who specialises in construction law in Dubai, estimated he had received a 60 to 80 percent increase in inquiries over the last two months relating to disputes over the termination and suspension of contracts and a reduction in work scope on construction projects.He said there was little contractors could do to chase money owed to them from developers who had defaulted on payments for work completed if a developer did not have sufficient money to pay, with the problem made worse by “rudimentary” insolvency laws in the UAE in the event of the developer becoming insolvent.“That issue (delayed payment of contractors) is potentially going to be a big feature of the first six months of this year,” said Blanksby.
“I think there’s a large measure of denial in the market place at moment among contractors. A lot of contractors think ‘it’s okay, we will get paid’, however if the money is not there there’s very little a contractor can do about it. “He said it was up to a contractor to consider the “creditworthiness” of a developer before entering into contract with it.There was an inequality between the laws protecting developers and contractors, he added.“If a contractor defaults the employer has the ability to go to the bondsman from the bank but if an employer fails to pay there’s no similar mechanism for the contractor,” he said.A number of projects in the UAE have been cancelled or have slowed down due to a collapse in the real estate market and a freezing of the credit markets as banks decline to finance new projects due to the high risks involved.
Showing posts with label Cancelled Projects. Show all posts
Showing posts with label Cancelled Projects. Show all posts
Tuesday, 10 February 2009
Saturday, 7 February 2009
Dubai Moves to Curb Possibility of Property Fraud
Dubai Moves to Curb Possibility of Property Fraud
07 February 2009DUBAI -
Dubai's land authorities said that laws are in place to protect the interests of investors, as slowing credit flow to the once-booming construction sector has prompted some developers to try wriggle out of contractual obligations.
The Dubai Land Department and law firms have recorded a sudden rise in cases of fraud in which some unscrupulous developers sold units in off-plan developments and fled the country without implementing the projects.
The Deputy Director-General of the Dubai Land , Mohammed Sultan Thani, said previously developers were not required to register off-plan developments with the department. However, Law 13 introduced in August last year made their registration a legal necessity.
The law states that all developments must have been registered by October 30, 2008, otherwise the developers would face legal action.
"We don't want to prosecute people straight away. In many cases, they don't know that they have to register," he said. "However, if they are not willing to register, we can prosecute." Difficulty in securing bank financing has resulted in the slowing down of construction activities and developers now demand more money upfront from investors.
© Khaleej Times 2009
07 February 2009DUBAI -
Dubai's land authorities said that laws are in place to protect the interests of investors, as slowing credit flow to the once-booming construction sector has prompted some developers to try wriggle out of contractual obligations.
The Dubai Land Department and law firms have recorded a sudden rise in cases of fraud in which some unscrupulous developers sold units in off-plan developments and fled the country without implementing the projects.
The Deputy Director-General of the Dubai Land , Mohammed Sultan Thani, said previously developers were not required to register off-plan developments with the department. However, Law 13 introduced in August last year made their registration a legal necessity.
The law states that all developments must have been registered by October 30, 2008, otherwise the developers would face legal action.
"We don't want to prosecute people straight away. In many cases, they don't know that they have to register," he said. "However, if they are not willing to register, we can prosecute." Difficulty in securing bank financing has resulted in the slowing down of construction activities and developers now demand more money upfront from investors.
© Khaleej Times 2009
Thursday, 22 January 2009
Dubai: Investors flee after brutal losses at global markets
original published: business 24-7
http://www.business24-7.ae/articles/2009/1/pages/01222009_3673721e993b422a8771628a9f8fca22.aspx
Dubai stocks were routed yet again as investors continue to flee the market following brutal losses on international exchanges.The DFM dropped 5.46 per cent to 1,462 points, its largest reverse for 21 sessions as all active sectors plumbed new depths. "
This is a new wave of fear," said Mohammed Ali Yasin, Shuaa Securities Chief Executive.
"Other markets have been doing badly, with the news coming out of Saudi Arabia much worse than expected, while the US exchanges have been going down for successive sessions."The index dropped from the outset, falling more than three per cent almost instantly, and the situation deteriorated from there."In terms of technical analysis, the fact Dubai broke 1,600 gave an indication that 1,800 was beyond its grasp and that further declines were probable," said Yasin.
Of the 10 largest stocks on the DFM, eight are now slumbering at two year lows following another day of savage declines.Emaar plunged 9.75 per cent to Dh1.85, the first time the developer has finished Dh2 since June 2004 as investors reacted negatively to its plans to raise Dh15 billion through a Dh7.5bn sukuk and a $7.5bn medium term note programme.
"Emaar's borrowing reminded investors that even the biggest companies are facing a liquidity crunch and that took down all UAE property developers, even those in Abu Dhabi," said Yasin.The property giant was one of 10 stocks to fall by more than nine per cent.The others included Arabtec, Dubai Islamic Bank, Air Arabia and DFM Company, with the latter falling the maximum 10 per cent. "
At the start of the year, many people were optimistic that the markets would improve, together with liquidity, but we've discovered that nothing has changed and panic has set in," said Yasin, adding: "When sentiment is this bad, investors do not discriminate between stocks, they'll sell anything."DFM Co is also one of 15 Dubai stocks to have fallen below their par value of Dh1 and there is a plethora of other statistics with which to scare investors.For example, the latest losses mean the DFM has fallen by 11 per cent – or 180 points – to far this week and is on course for its biggest weekly loss since late December.Losers outnumbered gainers 22:2, while the latter pair – Takaful House and Arab Insurance - saw just 13 trades between them.
Yesterday's bloodbath follows a four per cent fall on the Dow Jones Industrial Average and a six per cent decline on the Nasdaq late Tuesday, plus widespread declines in Asia yesterday morning.Forecast revisedAnalysts are revising downwards their immediate expectations for the UAE markets, with further losses forecast today. "After so many stocks hit limit down, the markets are likely to be weak," said Mohammed Ali Yasin, Shuaa Securities CEO.
This could see both UAE exchanges fall to levels not forecast even the day before, with DFM seemingly heading towards 1,250 to 1,300 in the near term, while ADX should challenge the 2,000 mark.Balancing the battered portfoliosIn the broad absence of retail investors, it seems mutual funds are largely responsible for what little trading there was yesterday, with fund managers battling to balance their battered portfolios.
For example, a manager has 25 per cent of his funds in each of telecoms, real estate, finance and energy and the latter three then see their values fall by 10 per cent but telecoms remains unchanged. This would mean the manager's portfolio was now made up of 32.5 per cent telecoms and 22.5 per cent in each of the other sectors, therefore forcing him to sell telecoms to rebalance the fund.
"Managers also have to contend with redemptions and so it seems they're driving the market down at the moment," said Mohammed Ali Yasin."I didn't see many day traders or retail investors active yesterday – it's mostly funds taking their direction from technical analysis. This was telling them to sell now because prices were only to going to fall and then maybe buy them back later."Investors seem to be selling whatever they can, so the most liquid stocks have been hit the hardest.
For example, the top four traders by value – Emaar, DFM Co, Air Arabia and Arabtec – all fell by more than nine per cent. This quartet claimed a combined turnover of Dh 146 million, which is almost three-quarters of the market total of Dh200m. Emaar's Dh68m and DFM Co's Dh47m mean this duo accounted for 58 per cent of all trading."
There's not excessive selling, but there's no buying demand, so the market can't arrest its decline – it's been the same story for more than three months," said Yasin
http://www.business24-7.ae/articles/2009/1/pages/01222009_3673721e993b422a8771628a9f8fca22.aspx
Dubai stocks were routed yet again as investors continue to flee the market following brutal losses on international exchanges.The DFM dropped 5.46 per cent to 1,462 points, its largest reverse for 21 sessions as all active sectors plumbed new depths. "
This is a new wave of fear," said Mohammed Ali Yasin, Shuaa Securities Chief Executive.
"Other markets have been doing badly, with the news coming out of Saudi Arabia much worse than expected, while the US exchanges have been going down for successive sessions."The index dropped from the outset, falling more than three per cent almost instantly, and the situation deteriorated from there."In terms of technical analysis, the fact Dubai broke 1,600 gave an indication that 1,800 was beyond its grasp and that further declines were probable," said Yasin.
Of the 10 largest stocks on the DFM, eight are now slumbering at two year lows following another day of savage declines.Emaar plunged 9.75 per cent to Dh1.85, the first time the developer has finished Dh2 since June 2004 as investors reacted negatively to its plans to raise Dh15 billion through a Dh7.5bn sukuk and a $7.5bn medium term note programme.
"Emaar's borrowing reminded investors that even the biggest companies are facing a liquidity crunch and that took down all UAE property developers, even those in Abu Dhabi," said Yasin.The property giant was one of 10 stocks to fall by more than nine per cent.The others included Arabtec, Dubai Islamic Bank, Air Arabia and DFM Company, with the latter falling the maximum 10 per cent. "
At the start of the year, many people were optimistic that the markets would improve, together with liquidity, but we've discovered that nothing has changed and panic has set in," said Yasin, adding: "When sentiment is this bad, investors do not discriminate between stocks, they'll sell anything."DFM Co is also one of 15 Dubai stocks to have fallen below their par value of Dh1 and there is a plethora of other statistics with which to scare investors.For example, the latest losses mean the DFM has fallen by 11 per cent – or 180 points – to far this week and is on course for its biggest weekly loss since late December.Losers outnumbered gainers 22:2, while the latter pair – Takaful House and Arab Insurance - saw just 13 trades between them.
Yesterday's bloodbath follows a four per cent fall on the Dow Jones Industrial Average and a six per cent decline on the Nasdaq late Tuesday, plus widespread declines in Asia yesterday morning.Forecast revisedAnalysts are revising downwards their immediate expectations for the UAE markets, with further losses forecast today. "After so many stocks hit limit down, the markets are likely to be weak," said Mohammed Ali Yasin, Shuaa Securities CEO.
This could see both UAE exchanges fall to levels not forecast even the day before, with DFM seemingly heading towards 1,250 to 1,300 in the near term, while ADX should challenge the 2,000 mark.Balancing the battered portfoliosIn the broad absence of retail investors, it seems mutual funds are largely responsible for what little trading there was yesterday, with fund managers battling to balance their battered portfolios.
For example, a manager has 25 per cent of his funds in each of telecoms, real estate, finance and energy and the latter three then see their values fall by 10 per cent but telecoms remains unchanged. This would mean the manager's portfolio was now made up of 32.5 per cent telecoms and 22.5 per cent in each of the other sectors, therefore forcing him to sell telecoms to rebalance the fund.
"Managers also have to contend with redemptions and so it seems they're driving the market down at the moment," said Mohammed Ali Yasin."I didn't see many day traders or retail investors active yesterday – it's mostly funds taking their direction from technical analysis. This was telling them to sell now because prices were only to going to fall and then maybe buy them back later."Investors seem to be selling whatever they can, so the most liquid stocks have been hit the hardest.
For example, the top four traders by value – Emaar, DFM Co, Air Arabia and Arabtec – all fell by more than nine per cent. This quartet claimed a combined turnover of Dh 146 million, which is almost three-quarters of the market total of Dh200m. Emaar's Dh68m and DFM Co's Dh47m mean this duo accounted for 58 per cent of all trading."
There's not excessive selling, but there's no buying demand, so the market can't arrest its decline – it's been the same story for more than three months," said Yasin
Saturday, 17 January 2009
Burj Al Arab design firm cuts 200 jobs - Construction & Industry - ArabianBusiness.com
Burj Al Arab design firm cuts 200 jobs - Construction & Industry - ArabianBusiness.com
The company behind the design for the iconic Burj Al Arab is cutting 200 jobs in the Middle East amid a sharp decline in the construction industy.Most of the job losses at UK-based WS Atkins are falling within the building design team in Dubai, the company told Arabian Business on Friday.
The design arm of the construction giant has also been responsible for other landmark developments in the region, including the Bahrain World Trade Centre, the recently delayed Trump International Hotel project on Palm Jumeirah and Bahrain International Airport.
A spokesman said: "Roles will be made redundant in those parts of the Group which are experiencing increasing uncertainty and worsening market conditions and we have deferred our annual salary review for six months. "
We can confirm that in Dubai there have been 170 redundancies, primarily from the building design team, out of total of around 3,000 staff in the region and 18,000 across the world. "
There have also been 40 redundancies from our Manila office among people working on Dubai projects. We're doing all we can to support those affected and to offer redeployment to other parts of the business where vacancies exist."
The spokesman added: "Atkins is a well managed organisation which has been performing very well as our results show. Our prudent management, quality of people, geographic diversity and breadth and depth of what we do means we are more resilient to economic slowdown than many of our competitors. "We are not immune to this, however.
We are taking action from a position of strength to ensure the future success of the Group."In a letter sent by chief executive Keith Clarke to staff on Friday, it was also announced that an annual pay review in April will be shelved until October.
The company behind the design for the iconic Burj Al Arab is cutting 200 jobs in the Middle East amid a sharp decline in the construction industy.Most of the job losses at UK-based WS Atkins are falling within the building design team in Dubai, the company told Arabian Business on Friday.
The design arm of the construction giant has also been responsible for other landmark developments in the region, including the Bahrain World Trade Centre, the recently delayed Trump International Hotel project on Palm Jumeirah and Bahrain International Airport.
A spokesman said: "Roles will be made redundant in those parts of the Group which are experiencing increasing uncertainty and worsening market conditions and we have deferred our annual salary review for six months. "
We can confirm that in Dubai there have been 170 redundancies, primarily from the building design team, out of total of around 3,000 staff in the region and 18,000 across the world. "
There have also been 40 redundancies from our Manila office among people working on Dubai projects. We're doing all we can to support those affected and to offer redeployment to other parts of the business where vacancies exist."
The spokesman added: "Atkins is a well managed organisation which has been performing very well as our results show. Our prudent management, quality of people, geographic diversity and breadth and depth of what we do means we are more resilient to economic slowdown than many of our competitors. "We are not immune to this, however.
We are taking action from a position of strength to ensure the future success of the Group."In a letter sent by chief executive Keith Clarke to staff on Friday, it was also announced that an annual pay review in April will be shelved until October.
Sunday, 28 December 2008
50pc of Property Developers Put Plans on Hold
50pc of Property Developers Put Plans on Hold
25 December 2008ABU DHABI -
About 50 per cent of property developers have put on hold their development plans for want of financial resources or projects' economic viability in the current stormy weather.
"So in the year 2009-2010, the supply of housing units would be much less than the earlier anticipated", said Nasser bin Hassan Al Shaikh director general Dubai Department of Finance, at a seminar at ADCCI.
In a best case scenario, Al Shaikh expected about 28,000 housing units will come on line in 2008.
He said that some investment banks and financial institutions churned out inflated figures of housing units being constructed, completed and coming on line in the year 2008 and 2009.There were suggestions of 60,000 or even 70,000.
In view of this situation, His Highness Shaikh Mohammed bin Rashid Al Maktoum Vice President and Prime Minister of the UAE and the Ruler of Dubai constituted a high level committee in order to figure out the state of reality sector in the emirate.
The committee, which gathered data from master developers as well as the private developers, came across with the first figure of 36,000 residential estimated to be under construction or to be completed 2008 and another 32000 apartments for the year 2009.
But, Even this number, the director general suspected could drop, because numbers were being further analysed, in view of some projects being delayed for various reasons.
Asked to comment on the per cent of fall in home prices in Dubai, he said it varies from neighborhood to neighbourhood.
© Khaleej Times 2008
25 December 2008ABU DHABI -
About 50 per cent of property developers have put on hold their development plans for want of financial resources or projects' economic viability in the current stormy weather.
"So in the year 2009-2010, the supply of housing units would be much less than the earlier anticipated", said Nasser bin Hassan Al Shaikh director general Dubai Department of Finance, at a seminar at ADCCI.
In a best case scenario, Al Shaikh expected about 28,000 housing units will come on line in 2008.
He said that some investment banks and financial institutions churned out inflated figures of housing units being constructed, completed and coming on line in the year 2008 and 2009.There were suggestions of 60,000 or even 70,000.
In view of this situation, His Highness Shaikh Mohammed bin Rashid Al Maktoum Vice President and Prime Minister of the UAE and the Ruler of Dubai constituted a high level committee in order to figure out the state of reality sector in the emirate.
The committee, which gathered data from master developers as well as the private developers, came across with the first figure of 36,000 residential estimated to be under construction or to be completed 2008 and another 32000 apartments for the year 2009.
But, Even this number, the director general suspected could drop, because numbers were being further analysed, in view of some projects being delayed for various reasons.
Asked to comment on the per cent of fall in home prices in Dubai, he said it varies from neighborhood to neighbourhood.
© Khaleej Times 2008
Thursday, 18 December 2008
Attention : Latest Advice RERA Dubai - Investors urged not to fall prey to 'spam' mails
original published EmiratesBusiness24/7 Dec. 18,2008
Investors urged not to fall prey to 'spam' mails
Dubai's Real Estate Regulatory Agency (Rera) has advised investors not to fall prey to "spam" mails, which misinterpret property laws and ask investors to stop payments to developers.
"People have been mislead by those mass e-mails and phone calls and so they have been coming to us for clarifications.
We have assured them of all help, if there are any problems," Rera Chief Executive Officer Marwan bin Ghalita told Emirates Business.
"The dissemination of such false information is both highly misleading and deceptive to investors. This will directly cause investors to lose money if they do not thoroughly read their contracts and seek proper legal advice."
The agency has urged investors to consult with Rera for any official information on Dubai's property market. "
We appeal to investors to only work with registered professional real estate agents and developers, and to always check the validity of the source of emails, phone calls and newspaper articles."A list of all registered agents and developers is updated and available on Rera's website.
However, it has made clear that it cannot protect investors who seek consultation and advise from unprofessional agents or property advisers.
The agency is in the process of establishing a free legal panel to provide consultation to investors. "
The best way to protect your rights as an investor is to seek information only with us by submitting an enquiry through the 'contact us' section of our website, http://www.rpdubai.com/, or by contacting our call centre directly."
All complete official enquiries submitted to Rera will be responded to within 48 hours.
Rera has further reiterated that all property laws introduced to the market are there to protect the market and the individual investor, and "these will remain as such", Ghalita said
Investors urged not to fall prey to 'spam' mails
Dubai's Real Estate Regulatory Agency (Rera) has advised investors not to fall prey to "spam" mails, which misinterpret property laws and ask investors to stop payments to developers.
"People have been mislead by those mass e-mails and phone calls and so they have been coming to us for clarifications.
We have assured them of all help, if there are any problems," Rera Chief Executive Officer Marwan bin Ghalita told Emirates Business.
"The dissemination of such false information is both highly misleading and deceptive to investors. This will directly cause investors to lose money if they do not thoroughly read their contracts and seek proper legal advice."
The agency has urged investors to consult with Rera for any official information on Dubai's property market. "
We appeal to investors to only work with registered professional real estate agents and developers, and to always check the validity of the source of emails, phone calls and newspaper articles."A list of all registered agents and developers is updated and available on Rera's website.
However, it has made clear that it cannot protect investors who seek consultation and advise from unprofessional agents or property advisers.
The agency is in the process of establishing a free legal panel to provide consultation to investors. "
The best way to protect your rights as an investor is to seek information only with us by submitting an enquiry through the 'contact us' section of our website, http://www.rpdubai.com/, or by contacting our call centre directly."
All complete official enquiries submitted to Rera will be responded to within 48 hours.
Rera has further reiterated that all property laws introduced to the market are there to protect the market and the individual investor, and "these will remain as such", Ghalita said
Friday, 12 December 2008
Dubai real estate sector close to 'tipping point' - Real Estate - ArabianBusiness.com
Dubai real estate sector close to 'tipping point' - Real Estate - ArabianBusiness.com
Dubai’s housing market could be approaching "tipping point", HSBC said in its monthly housing index on Thursday. Although advertised house prices rose by four percent in Dubai between October and November, erasing an identical fall the previous month, the overall picture is one of a rapidly cooling market, the bank reported.
HSBC put the November increase down a glut of small apartments - commanding high prices on square metre basis - coming to market in recent weeks.
There was a 36 per cent jump in the number of people putting their property up for sale in November, yet more signs that investors are fleeing the market as price growth slows and mortgage availability dries up in the wake of the global credit crunch.
This follows HSBC’s report last month which said property prices in Dubai fell four percent between September and October, with the price of villas tumbling 19 percent.
Last week, property consultant Colliers International said house price growth slowed to 5 per cent in the third quarter this year and warned values could fall in the final quarter of 2008. In a surprise blow to Abu Dhabi’s property market, long considered a safer investment than Dubai, values fell 1 percent, according to HSBC. However, research from investment bank Citi last month was upbeat on Abu Dhabi’s property market, saying the cash-rich emirate was able to finance all of its current projects because of massive budget surpluses and sovereign wealth built up on the back of soaring oil prices in the earlier part of the year.
Dubai’s housing market could be approaching "tipping point", HSBC said in its monthly housing index on Thursday. Although advertised house prices rose by four percent in Dubai between October and November, erasing an identical fall the previous month, the overall picture is one of a rapidly cooling market, the bank reported.
HSBC put the November increase down a glut of small apartments - commanding high prices on square metre basis - coming to market in recent weeks.
There was a 36 per cent jump in the number of people putting their property up for sale in November, yet more signs that investors are fleeing the market as price growth slows and mortgage availability dries up in the wake of the global credit crunch.
This follows HSBC’s report last month which said property prices in Dubai fell four percent between September and October, with the price of villas tumbling 19 percent.
Last week, property consultant Colliers International said house price growth slowed to 5 per cent in the third quarter this year and warned values could fall in the final quarter of 2008. In a surprise blow to Abu Dhabi’s property market, long considered a safer investment than Dubai, values fell 1 percent, according to HSBC. However, research from investment bank Citi last month was upbeat on Abu Dhabi’s property market, saying the cash-rich emirate was able to finance all of its current projects because of massive budget surpluses and sovereign wealth built up on the back of soaring oil prices in the earlier part of the year.
Wednesday, 10 December 2008
Property poker - Real Estate - ArabianBusiness.com
Property poker - Real Estate - ArabianBusiness.com
For what some might call semi-professional property speculators and others might call amateur gamblers, the game is up.Flipping properties – the business of buying villas and apartments off-plan and then selling them before they are built – has made millions for the professionals, but is about to cost the amateurs their shirts.
The problem, as with most gambling, is that it becomes addictive and destructive. The value of money changes as you win it. The descent into dangerous addiction for many of these flippers has gone something like this:
They took a punt on their first property around three-four years ago. The earliest property pioneers, who might have bought a luxury apartment off-plan on Palm Island for less than the price of a granny flat in their home country, watched the value of their investment double, treble, quadruple over the first two years.
These were typically high net worth individuals with diversified portfolios who were well-judged in taking a punt on embryonic real estate laws and a visionary development.
Word spread that easy money was being made and the amateurs poured into the market.
Conditions were perfect: the market was rising fast; disposable incomes were high thanks to relatively cheap living costs at the time (yes, they really were low four years ago); and banks were ready to lend money to anybody with a reasonable salary certificate.A gambler would probably have started relatively small, perhaps a modest apartment in Jumeirah Beach Residence.
But when that property doubled in value before the tower’s foundations were laid they borrowed again from the bank using the paper profits from their first apartment as collateral.The banks were even more willing to lend because the punter had a tangible asset as security. Now the player could double-up.
A year or two later, nerves began to set in about the Dubai property market.
There was a lot of talk of bubbles bursting and it seemed a good time to cash in those chips. A lot of this profit taking went on at the beginning of 2008, heralding the first signs of a correction.But the gambler was now hooked.
The original investment of 500,000 dirhams had been turned into five million dirhams, and the money was burning a hole in his pocket.The Dubai market looked like cooling a little, but Abu Dhabi was still red hot.
The time for the big play had arrived.
Five million dirhams used as a down payment on off-plan property in Abu Dhabi meant the same trick he pulled a few years earlier in Dubai could be repeated in the UAE capital. If Abu Dhabi followed the same trajectory as Dubai, reasoned the gambler, five million could be turned into 20 million or more.
Then September hit.
With hindsight we might now call it the Ramadan Rout.
Credit markets seized, making it impossible for property developers to find finance for future projects and individuals unable to borrow money for a mortgage or even a rent cheque.Confidence evaporated overnight. It was impossible to track the rate property prices were falling because no transactions were taking place. Worst affected was the off-plan market because nobody wanted to buy property that might be worth less when built than it was on paper.
The loss of confidence was not contained to Dubai. Abu Dhabi was hit too.
The gambler was suddenly in a cold sweat. When the developer building his properties completes the construction, he will have to find a mortgage to cover the outstanding balance of the price he paid.But the banks are no longer lending. The properties could already be worth less than he paid for them and the banks do not want to take the risk of lending against a depreciating asset.
If he can’t secure a mortgage, the gambler is sunk and the properties will be repossessed by the developer.
The only remaining hope is to sell at a fire sale price before the building is completed.
This is the picture that is being repeated across half-built real estate developments throughout the GCC, and it explains why prices have fallen so far and so fast.
Thousands of speculators have to dump their properties before they are completed.There is no short term fix that will reverse the trend.
There is only a hope that prices will eventually fall so far that bottom-feeding investors return to snap up bargains.
The irony is that the same professional property dealers that made a killing on the first off-plan developments will be back to make another killing at the end.
Between times, the amateur gamblers have been on an exhilarating ride, but now many are left to rue one big bet too many.
For what some might call semi-professional property speculators and others might call amateur gamblers, the game is up.Flipping properties – the business of buying villas and apartments off-plan and then selling them before they are built – has made millions for the professionals, but is about to cost the amateurs their shirts.
The problem, as with most gambling, is that it becomes addictive and destructive. The value of money changes as you win it. The descent into dangerous addiction for many of these flippers has gone something like this:
They took a punt on their first property around three-four years ago. The earliest property pioneers, who might have bought a luxury apartment off-plan on Palm Island for less than the price of a granny flat in their home country, watched the value of their investment double, treble, quadruple over the first two years.
These were typically high net worth individuals with diversified portfolios who were well-judged in taking a punt on embryonic real estate laws and a visionary development.
Word spread that easy money was being made and the amateurs poured into the market.
Conditions were perfect: the market was rising fast; disposable incomes were high thanks to relatively cheap living costs at the time (yes, they really were low four years ago); and banks were ready to lend money to anybody with a reasonable salary certificate.A gambler would probably have started relatively small, perhaps a modest apartment in Jumeirah Beach Residence.
But when that property doubled in value before the tower’s foundations were laid they borrowed again from the bank using the paper profits from their first apartment as collateral.The banks were even more willing to lend because the punter had a tangible asset as security. Now the player could double-up.
A year or two later, nerves began to set in about the Dubai property market.
There was a lot of talk of bubbles bursting and it seemed a good time to cash in those chips. A lot of this profit taking went on at the beginning of 2008, heralding the first signs of a correction.But the gambler was now hooked.
The original investment of 500,000 dirhams had been turned into five million dirhams, and the money was burning a hole in his pocket.The Dubai market looked like cooling a little, but Abu Dhabi was still red hot.
The time for the big play had arrived.
Five million dirhams used as a down payment on off-plan property in Abu Dhabi meant the same trick he pulled a few years earlier in Dubai could be repeated in the UAE capital. If Abu Dhabi followed the same trajectory as Dubai, reasoned the gambler, five million could be turned into 20 million or more.
Then September hit.
With hindsight we might now call it the Ramadan Rout.
Credit markets seized, making it impossible for property developers to find finance for future projects and individuals unable to borrow money for a mortgage or even a rent cheque.Confidence evaporated overnight. It was impossible to track the rate property prices were falling because no transactions were taking place. Worst affected was the off-plan market because nobody wanted to buy property that might be worth less when built than it was on paper.
The loss of confidence was not contained to Dubai. Abu Dhabi was hit too.
The gambler was suddenly in a cold sweat. When the developer building his properties completes the construction, he will have to find a mortgage to cover the outstanding balance of the price he paid.But the banks are no longer lending. The properties could already be worth less than he paid for them and the banks do not want to take the risk of lending against a depreciating asset.
If he can’t secure a mortgage, the gambler is sunk and the properties will be repossessed by the developer.
The only remaining hope is to sell at a fire sale price before the building is completed.
This is the picture that is being repeated across half-built real estate developments throughout the GCC, and it explains why prices have fallen so far and so fast.
Thousands of speculators have to dump their properties before they are completed.There is no short term fix that will reverse the trend.
There is only a hope that prices will eventually fall so far that bottom-feeding investors return to snap up bargains.
The irony is that the same professional property dealers that made a killing on the first off-plan developments will be back to make another killing at the end.
Between times, the amateur gamblers have been on an exhilarating ride, but now many are left to rue one big bet too many.
Tuesday, 2 December 2008
Nakheel cuts staff, delays projects - The National Newspaper
Nakheel cuts staff, delays projects - The National Newspaper
Nakheel has made 500 of its staff redundant as it delays work on major projects including the Trump International Tower and Hotel on Palm Jumeirah, Waterfront, Palm Jebel Ali and The Universe, the company said yesterday.
The decision is another sign of the global economic slowdown affecting the property sector. Banks have tightened lending, prices have dropped and sales have slowed, forcing developers to review their expansion plans.
The job losses make up 15 per cent of Nakheel’s workforce, which now stands at 3,000, and follow at least four years of breakneck hiring.
Nakheel said in a statement that the layoffs were “a responsible action in light of the current global market conditions”.“The redundancies are indeed regrettable, but a necessity dictated by operational requirements which are in turn dependent on demand.”
In another statement, Nakheel said it was delaying long-term infrastructure work on some of its projects.The projects include Frond N villas, Gateway Towers and Trump International Hotel and Tower on Palm Jumeirah.At Waterfront, work on Madinat Al Arab, Venetto, Badra and Canal District is continuing as planned, but other phases will be delayed.
The company has already slowed reclamation work on parts of Palm Deira, the largest of the Palm island trilogy, while the pace of construction on components of Palm Jebel Ali is expected to slow.
Work on The Universe, a collection of reclaimed islands planned to be built between Palm Jumeirah and Palm Deira and launched in January this year, will also be restricted to preliminary engineering studies.
The statement said: “Nakheel is delaying long-dated infrastructure work on some of our projects in order to ensure that our business model is aligned to meet market demand. We have the responsibility to adjust our short-term business plans to accommodate the current global environment.
Work on all other Nakheel projects is ongoing as planned.”
Reclamation on The Universe was intended to begin by the end of this year and negotiations were under way with at least three contractors. The contractors now expect the project to be awarded much later. “We are in talks, but I think the contract will be awarded much later than December,” said one contractor. In the past month, almost 1,000 job losses have been confirmed by developers in Dubai.Damac Properties, the emirate’s largest private developer, laid off 200 of its 8,000-strong workforce, while 180 out of 350 staff at Tameer Holding, another Dubai developer, were told they would lose their jobs by the end of this month. Omniyat Properties also confirmed 69 redundancies from its workforce of 350.“It’s not unusual for companies to downsize during a recession,” said Peter Walichnowski, the chief executive of Omniyat Properties. “Also, if the skill-sets are not required it’s best for people to find other jobs that want and need them at that point in time.”Still, Omniyat plans to boost staff numbers in its customer care and facilities management divisions in time for the completion of projects, three of which will be handed over early next year.“We need to allocate resources into areas of the company that are more appropriate,” said Alex Andarakis, the company’s director of sales and marketing.Recruitment experts said that while there has been a slowdown in Abu Dhabi, redundancies have so far only hit Dubai, but are now trickling down to construction consultancy firms and contractors. According to Duncan Murray, a consultant at Duneden Recruitment, the situation has led to “too many people looking for too few jobs”. “Companies in Dubai are culling people left, right and centre,” he said. “It’s now a case of people not knowing each day whether they’re going to have a job or not.”And as developers and construction firms freeze hiring, recruitment companies are aggressively looking to place applicants in jobs elsewhere in the GCC.“People will just have to go to places like Qatar and Saudi Arabia if they want to work,” said Mr Murray.“It will be a lot harder for families, but people can’t afford to be fussy and they will also need to be more flexible and accept pay cuts.”Mr Murray predicted that it could be early 2010 before companies think about recruiting again.“It will be a difficult 12 months ahead,” he said.agiuffrida@thenational.aebhope@thenational.ae
Nakheel has made 500 of its staff redundant as it delays work on major projects including the Trump International Tower and Hotel on Palm Jumeirah, Waterfront, Palm Jebel Ali and The Universe, the company said yesterday.
The decision is another sign of the global economic slowdown affecting the property sector. Banks have tightened lending, prices have dropped and sales have slowed, forcing developers to review their expansion plans.
The job losses make up 15 per cent of Nakheel’s workforce, which now stands at 3,000, and follow at least four years of breakneck hiring.
Nakheel said in a statement that the layoffs were “a responsible action in light of the current global market conditions”.“The redundancies are indeed regrettable, but a necessity dictated by operational requirements which are in turn dependent on demand.”
In another statement, Nakheel said it was delaying long-term infrastructure work on some of its projects.The projects include Frond N villas, Gateway Towers and Trump International Hotel and Tower on Palm Jumeirah.At Waterfront, work on Madinat Al Arab, Venetto, Badra and Canal District is continuing as planned, but other phases will be delayed.
The company has already slowed reclamation work on parts of Palm Deira, the largest of the Palm island trilogy, while the pace of construction on components of Palm Jebel Ali is expected to slow.
Work on The Universe, a collection of reclaimed islands planned to be built between Palm Jumeirah and Palm Deira and launched in January this year, will also be restricted to preliminary engineering studies.
The statement said: “Nakheel is delaying long-dated infrastructure work on some of our projects in order to ensure that our business model is aligned to meet market demand. We have the responsibility to adjust our short-term business plans to accommodate the current global environment.
Work on all other Nakheel projects is ongoing as planned.”
Reclamation on The Universe was intended to begin by the end of this year and negotiations were under way with at least three contractors. The contractors now expect the project to be awarded much later. “We are in talks, but I think the contract will be awarded much later than December,” said one contractor. In the past month, almost 1,000 job losses have been confirmed by developers in Dubai.Damac Properties, the emirate’s largest private developer, laid off 200 of its 8,000-strong workforce, while 180 out of 350 staff at Tameer Holding, another Dubai developer, were told they would lose their jobs by the end of this month. Omniyat Properties also confirmed 69 redundancies from its workforce of 350.“It’s not unusual for companies to downsize during a recession,” said Peter Walichnowski, the chief executive of Omniyat Properties. “Also, if the skill-sets are not required it’s best for people to find other jobs that want and need them at that point in time.”Still, Omniyat plans to boost staff numbers in its customer care and facilities management divisions in time for the completion of projects, three of which will be handed over early next year.“We need to allocate resources into areas of the company that are more appropriate,” said Alex Andarakis, the company’s director of sales and marketing.Recruitment experts said that while there has been a slowdown in Abu Dhabi, redundancies have so far only hit Dubai, but are now trickling down to construction consultancy firms and contractors. According to Duncan Murray, a consultant at Duneden Recruitment, the situation has led to “too many people looking for too few jobs”. “Companies in Dubai are culling people left, right and centre,” he said. “It’s now a case of people not knowing each day whether they’re going to have a job or not.”And as developers and construction firms freeze hiring, recruitment companies are aggressively looking to place applicants in jobs elsewhere in the GCC.“People will just have to go to places like Qatar and Saudi Arabia if they want to work,” said Mr Murray.“It will be a lot harder for families, but people can’t afford to be fussy and they will also need to be more flexible and accept pay cuts.”Mr Murray predicted that it could be early 2010 before companies think about recruiting again.“It will be a difficult 12 months ahead,” he said.agiuffrida@thenational.aebhope@thenational.ae
Builders struggle to get payments - The National Newspaper
Builders struggle to get payments - The National Newspaper
Construction firms in Dubai are struggling to get payments from some developers as major projects stall and further doubt is cast over the feasibility of others.
Meraas Development, a company controlled by the Dubai government, became the latest to announce a review of a major development, the Dh350 billion (US$95.3bn) Jumeirah Gardens City project, in light of the global economic downturn.
It followed an announcement by Nakheel on Sunday that it was delaying work on projects including the Trump International Tower and Hotel on Palm Jumeirah, Waterfront, Palm Jebel Ali and The Universe.
The Jumeirah Gardens City project, which will raze the district of Satwa in Dubai to make way for a number of tall towers, a park and a canal system, was only launched at Dubai’s Cityscape in October.
“We are simply reviewing our business strategy, as well as the phasing and rollout of the Jumeirah Gardens project, to make sure the development proceeds in the most opportune way to meet changing investor needs,” Meraas said.The company said there would be more clarity on the project by the beginning of next year.Contractors including Dutco Balfour Beatty, Samsung Engineering and Construction, Al Habtoor Leighton Group and Murray & Roberts are among those working on Nakheel’s projects.
“We’re still reviewing things at the moment to see where we stand,” said Grahame McCaig, the general manager of Dutco Balfour Beatty. “Getting payment is worse than usual; we’ve really struggled to get paid by a lot of people.
At the moment, the cash issue is far bigger than the workload one.”
Al Habtoor Leighton Group, a joint venture between Australia’s Leighton International and Dubai’s Al Habtoor Engineering, had been working on the Dh2.9bn contract to build the Trump International Hotel and Tower in partnership with Murray & Roberts, a South African construction firm, since July.
The company is trying to recover costs now that the project has been suspended, but said last week’s Dh8.85bn contract win to build Dubai Pearl would help to cushion the blow. It is not yet known when work on Trump Tower will resume. “This is something we’re in discussions about,” said Chris Gordon, the general manager of corporate affairs and strategy at Leighton International. “We’ve been fortunate in that we’ve secured work on other projects, so that should cover things, and we can move staff on to those.”
Mr McCaig added that developers were legally obliged to reimburse contractors for costs incurred, should a contract be cancelled. “They either cover the costs incurred to date, or agree [on] a reasonable cost. It’s an important part of the termination process.”While Samsung Engineering & Construction, a South Korean firm, has not had any of its deals with Nakheel stalled, the company has been experiencing delays in payments on certain jobs.
“We’re getting delays in payment by about two to three weeks now,” said Beejay Kim, a senior manager with Samsung Engineering, which is also building Emaar’s Burj Dubai with Arabtec and BESIX Group.
Samsung Engineering is one of five companies that have been invited to bid for the construction of the kilometre-high tower, which will form part of the Dh140bn Nakheel Harbour & Tower development in Dubai, also launched at Cityscape in October.
Groundwork started earlier this year and is among Nakheel’s projects that are expected to go ahead. agiuffrida@thenational.ae
Construction firms in Dubai are struggling to get payments from some developers as major projects stall and further doubt is cast over the feasibility of others.
Meraas Development, a company controlled by the Dubai government, became the latest to announce a review of a major development, the Dh350 billion (US$95.3bn) Jumeirah Gardens City project, in light of the global economic downturn.
It followed an announcement by Nakheel on Sunday that it was delaying work on projects including the Trump International Tower and Hotel on Palm Jumeirah, Waterfront, Palm Jebel Ali and The Universe.
The Jumeirah Gardens City project, which will raze the district of Satwa in Dubai to make way for a number of tall towers, a park and a canal system, was only launched at Dubai’s Cityscape in October.
“We are simply reviewing our business strategy, as well as the phasing and rollout of the Jumeirah Gardens project, to make sure the development proceeds in the most opportune way to meet changing investor needs,” Meraas said.The company said there would be more clarity on the project by the beginning of next year.Contractors including Dutco Balfour Beatty, Samsung Engineering and Construction, Al Habtoor Leighton Group and Murray & Roberts are among those working on Nakheel’s projects.
“We’re still reviewing things at the moment to see where we stand,” said Grahame McCaig, the general manager of Dutco Balfour Beatty. “Getting payment is worse than usual; we’ve really struggled to get paid by a lot of people.
At the moment, the cash issue is far bigger than the workload one.”
Al Habtoor Leighton Group, a joint venture between Australia’s Leighton International and Dubai’s Al Habtoor Engineering, had been working on the Dh2.9bn contract to build the Trump International Hotel and Tower in partnership with Murray & Roberts, a South African construction firm, since July.
The company is trying to recover costs now that the project has been suspended, but said last week’s Dh8.85bn contract win to build Dubai Pearl would help to cushion the blow. It is not yet known when work on Trump Tower will resume. “This is something we’re in discussions about,” said Chris Gordon, the general manager of corporate affairs and strategy at Leighton International. “We’ve been fortunate in that we’ve secured work on other projects, so that should cover things, and we can move staff on to those.”
Mr McCaig added that developers were legally obliged to reimburse contractors for costs incurred, should a contract be cancelled. “They either cover the costs incurred to date, or agree [on] a reasonable cost. It’s an important part of the termination process.”While Samsung Engineering & Construction, a South Korean firm, has not had any of its deals with Nakheel stalled, the company has been experiencing delays in payments on certain jobs.
“We’re getting delays in payment by about two to three weeks now,” said Beejay Kim, a senior manager with Samsung Engineering, which is also building Emaar’s Burj Dubai with Arabtec and BESIX Group.
Samsung Engineering is one of five companies that have been invited to bid for the construction of the kilometre-high tower, which will form part of the Dh140bn Nakheel Harbour & Tower development in Dubai, also launched at Cityscape in October.
Groundwork started earlier this year and is among Nakheel’s projects that are expected to go ahead. agiuffrida@thenational.ae
Saturday, 29 November 2008
Negative equity, defaults 'now a Dubai reality' - Real Estate - ArabianBusiness.com
Negative equity, defaults 'now a Dubai reality' - Real Estate - ArabianBusiness.com
Negative equity and widespread mortgage default is already happening in Dubai, with repossessions also likely, property experts have said.
Banks ramping up interest rates on home loans coupled with falling real estate prices have hit buyers of off-plan property hard as the market cools in the face of dwindling demand due to the global financial crisis.
“The problems of negative equity and mortgage default are now realities in Dubai,” said Matthew Hooton, head of real estate in the Middle East for law firm Ashurst.
Speculators who bought off plan - property yet to be completed - during Dubai’s six year real estate boom are now faced with spiralling mortgage costs as lenders grow increasingly fearful over customers defaulting on payments.
Official figures from HSBC bank published earlier this month showed that the price of top-end apartments fell by as much as 30 percent in Dubai’s downtown DIFC district during October. Experts believe if growing numbers of homeowners fall into negative equity, there will be a rush to sell real estate.
“Where you get real problems in the mortgage market is when you get the double whammy high interest rates making mortgages unaffordable and dropping house prices,” warned Chris Dommett, CEO of mortgage broker John Charcoal’s Dubai office.“That would be exacerbated here because most of the population are not from here. "The incentive to cut and run is greater.
If somebody can’t afford to repay their mortgage and house is worth less than is owed, it is a double incentive to walk away because that person is not walking away from any equity,” he added.
Negative equity - a term synonymous with Britain’s housing crash in the 1990s - is when the value of the property is worth less than the mortgage. Banks in the region are also under fire from leading industry figures over hiking mortgage rates way above the interbank rate or eibor, currently at 4.31 percent, for three months.
Arabian Business revealed last week that banks including HSBC and the UAE’s largest home loan lender Amlak, have hiked interest rates on new mortgages by up to 2 percent and are now charging customers up to 9.75 percent monthly interest.
Ian Albert, regional director at real estate broker Colliers International in Dubai said:
“I object to banks racking up interest rates. It’s excessive. You’ve got this problem where the banks are almost self-defeating themselves. "If I borrow at 8 percent I need to lease my property at 12 percent, the greater my yield increases, the greater the property value is depressed.” Albert predicted that although repossessions will happen it was unclear how banks in the UAE are set up to deal with such a scenario.
Negative equity and widespread mortgage default is already happening in Dubai, with repossessions also likely, property experts have said.
Banks ramping up interest rates on home loans coupled with falling real estate prices have hit buyers of off-plan property hard as the market cools in the face of dwindling demand due to the global financial crisis.
“The problems of negative equity and mortgage default are now realities in Dubai,” said Matthew Hooton, head of real estate in the Middle East for law firm Ashurst.
Speculators who bought off plan - property yet to be completed - during Dubai’s six year real estate boom are now faced with spiralling mortgage costs as lenders grow increasingly fearful over customers defaulting on payments.
Official figures from HSBC bank published earlier this month showed that the price of top-end apartments fell by as much as 30 percent in Dubai’s downtown DIFC district during October. Experts believe if growing numbers of homeowners fall into negative equity, there will be a rush to sell real estate.
“Where you get real problems in the mortgage market is when you get the double whammy high interest rates making mortgages unaffordable and dropping house prices,” warned Chris Dommett, CEO of mortgage broker John Charcoal’s Dubai office.“That would be exacerbated here because most of the population are not from here. "The incentive to cut and run is greater.
If somebody can’t afford to repay their mortgage and house is worth less than is owed, it is a double incentive to walk away because that person is not walking away from any equity,” he added.
Negative equity - a term synonymous with Britain’s housing crash in the 1990s - is when the value of the property is worth less than the mortgage. Banks in the region are also under fire from leading industry figures over hiking mortgage rates way above the interbank rate or eibor, currently at 4.31 percent, for three months.
Arabian Business revealed last week that banks including HSBC and the UAE’s largest home loan lender Amlak, have hiked interest rates on new mortgages by up to 2 percent and are now charging customers up to 9.75 percent monthly interest.
Ian Albert, regional director at real estate broker Colliers International in Dubai said:
“I object to banks racking up interest rates. It’s excessive. You’ve got this problem where the banks are almost self-defeating themselves. "If I borrow at 8 percent I need to lease my property at 12 percent, the greater my yield increases, the greater the property value is depressed.” Albert predicted that although repossessions will happen it was unclear how banks in the UAE are set up to deal with such a scenario.
Thursday, 27 November 2008
Property buyers struggle to make payments - The National Newspaper
Property buyers struggle to make payments - The National Newspaper
Property developers are seeing more defaults by home buyers and property investors, who are caught between declining prices and a shortage of lending by banks, Dubai’s property regulator said today.Marwan bin Ghalita, the chief executive of the Real Estate Regulatory Authority (Rera), said some developers had reported up to 40 per cent of buyers falling behind on their payments where units were sold off-plan by developers before they are completed or in some cases where construction has yet to even begin.
Most cannot sell the units they have purchased because buyers are scarce. But they cannot continue to make payments because banks are tightening lending amid the global credit crisis or will not pay because they are concerned the project may never be built. Some are simply walking away and leaving their downpayments. Defaults are particularly high among speculators who bought properties without financing, aiming of re-selling and pocket a quick profit.
The federal government is now moving aggressively to try to reinvigorate mortgage lending, while many developers are adjusting installment plans to accomodate some delay in payments before default. But Mr Ghalita said defaults could climb to the 40 per cent level in the off-plan, secondary market for property “if banks do not provide finance and developers do not change payment plans by the end of the year since payments are due,” Mr Ghalita said.
Precise figures on defaults and overdue payments are not available. But Mr Ghalita said he saw evidence of rising default levels in his department’s monitoring of what is known as the “trust account,” which is controlled by Rera and takes in payments from buyers until a project is completed. “In projects where the percentage of speculators is high, there are cancellations,” he said in an interview in his Dubai office. “But in projects with end-users, cancellations are less than 10 per cent,” he said.
According to Rera statistics, there are 922 residential and commercial property developments in Dubai, of which 479, accounting for 46,000 units, are under construction.Industry officials and analysts said rising default rates may push prices lower in the short-term, That could help refocus the market on end-users rather than speculators over the long term, but could put stress on many developers as their cash-flow from investors dries up even as loans are tough to obtain.
“We would obviously see more downward pressure on real estate prices,” said Robert McKinnon, the managing director of Al Mal Capital, “The closer people get to defaulting, the more they panic. Developers themselves will have to take a lot of these assets, that they recognise as sold back, on their books. You are going to see a hit to their earnings also.”Developers say the government is tracking default levels closely and could make finance available to companies with viable developments if necessary. But prices may continue to adjust until new buyers enter the market in significant numbers. “I believe eventually that the issue is actually more about affordability,” Mr McKinnon said. “Real estate prices are going to come down to a point where consumers or end-users find it attractive for them to buy.”
Buyers tend to fall behind on payments for several reasons. Some cannot afford to keep up payments because they do not have the cash and cannot borrow. Others decide to stop paying out of a lack of confidence in the developer, or because they fear the value of the asset has already dropped below what they agreed to pay for it.The Government has begun to address the shortage of credit from banks by merging the two largest home loan companies into a state-run bank, and launching a new government-backed mortgage company.
Mr Ghalita said the government has also moved to bolster confidence in projects by barring developers from cancelling sales contracts if construction had not started. The government has also moved to discourage speculators from withdrawing from purchase agreements with a new rule that buyers must forfeit 30 per cent of the property’s value if they default. Buyers had previously forefeited just 30 per cent of what they had already paid, according to lawyers.
Some investors argue the rule provides an incentive to developers to cancel projects and walk away with the money. Mr Ghalita said government will prevent that by requiring approval from the Land Department before any project can be cancelled. “The Land Department is not allowing cancellation without evaluating the whole project. If we cannot reach an agreement, they will have to go to the court to force the cancellation, which will take a long time,” he said.
Mr Ghalita said the authority was acting as a mediator and was negotiating with developers who have run into financing problems. In the meantime, he said the rise in missed payments underscores the urgency of government efforts to get the flow of mortgage lending going again.“I think finance is important for off-plan market continuity,” he said. “The market will change by itself. Developers will be smart enough to start a project, get the finance, then think of selling or keeping it for rent. This will happen 100 per cent. They will not depend on off-plan sales anymore. For sure.”
Property developers are seeing more defaults by home buyers and property investors, who are caught between declining prices and a shortage of lending by banks, Dubai’s property regulator said today.Marwan bin Ghalita, the chief executive of the Real Estate Regulatory Authority (Rera), said some developers had reported up to 40 per cent of buyers falling behind on their payments where units were sold off-plan by developers before they are completed or in some cases where construction has yet to even begin.
Most cannot sell the units they have purchased because buyers are scarce. But they cannot continue to make payments because banks are tightening lending amid the global credit crisis or will not pay because they are concerned the project may never be built. Some are simply walking away and leaving their downpayments. Defaults are particularly high among speculators who bought properties without financing, aiming of re-selling and pocket a quick profit.
The federal government is now moving aggressively to try to reinvigorate mortgage lending, while many developers are adjusting installment plans to accomodate some delay in payments before default. But Mr Ghalita said defaults could climb to the 40 per cent level in the off-plan, secondary market for property “if banks do not provide finance and developers do not change payment plans by the end of the year since payments are due,” Mr Ghalita said.
Precise figures on defaults and overdue payments are not available. But Mr Ghalita said he saw evidence of rising default levels in his department’s monitoring of what is known as the “trust account,” which is controlled by Rera and takes in payments from buyers until a project is completed. “In projects where the percentage of speculators is high, there are cancellations,” he said in an interview in his Dubai office. “But in projects with end-users, cancellations are less than 10 per cent,” he said.
According to Rera statistics, there are 922 residential and commercial property developments in Dubai, of which 479, accounting for 46,000 units, are under construction.Industry officials and analysts said rising default rates may push prices lower in the short-term, That could help refocus the market on end-users rather than speculators over the long term, but could put stress on many developers as their cash-flow from investors dries up even as loans are tough to obtain.
“We would obviously see more downward pressure on real estate prices,” said Robert McKinnon, the managing director of Al Mal Capital, “The closer people get to defaulting, the more they panic. Developers themselves will have to take a lot of these assets, that they recognise as sold back, on their books. You are going to see a hit to their earnings also.”Developers say the government is tracking default levels closely and could make finance available to companies with viable developments if necessary. But prices may continue to adjust until new buyers enter the market in significant numbers. “I believe eventually that the issue is actually more about affordability,” Mr McKinnon said. “Real estate prices are going to come down to a point where consumers or end-users find it attractive for them to buy.”
Buyers tend to fall behind on payments for several reasons. Some cannot afford to keep up payments because they do not have the cash and cannot borrow. Others decide to stop paying out of a lack of confidence in the developer, or because they fear the value of the asset has already dropped below what they agreed to pay for it.The Government has begun to address the shortage of credit from banks by merging the two largest home loan companies into a state-run bank, and launching a new government-backed mortgage company.
Mr Ghalita said the government has also moved to bolster confidence in projects by barring developers from cancelling sales contracts if construction had not started. The government has also moved to discourage speculators from withdrawing from purchase agreements with a new rule that buyers must forfeit 30 per cent of the property’s value if they default. Buyers had previously forefeited just 30 per cent of what they had already paid, according to lawyers.
Some investors argue the rule provides an incentive to developers to cancel projects and walk away with the money. Mr Ghalita said government will prevent that by requiring approval from the Land Department before any project can be cancelled. “The Land Department is not allowing cancellation without evaluating the whole project. If we cannot reach an agreement, they will have to go to the court to force the cancellation, which will take a long time,” he said.
Mr Ghalita said the authority was acting as a mediator and was negotiating with developers who have run into financing problems. In the meantime, he said the rise in missed payments underscores the urgency of government efforts to get the flow of mortgage lending going again.“I think finance is important for off-plan market continuity,” he said. “The market will change by itself. Developers will be smart enough to start a project, get the finance, then think of selling or keeping it for rent. This will happen 100 per cent. They will not depend on off-plan sales anymore. For sure.”
Direct gov't action called for to support property market - Real Estate - ArabianBusiness.com
Direct gov't action called for to support property market - Real Estate - ArabianBusiness.com
RichVille, a real estate asset management firm, on Wednesday accused authorities in Dubai of not doing enough to support the faltering real estate market.The company, part of Dubai-based conglomerate Tharaa Holding, said in a report that authorities needed to take direct action to revive the market, which saw real estate prices fall four percent between September and October, according to HSBC.
The global financial crisis has hit demand for real estate in Dubai from foreign investors, which make up a large percentage of buyers, while tightening liquidity has made home financing more difficult.
RichVille blamed the downturn in the market on banks, which have tightened lending conditions in recent months despite the UAE central bank making 120 billion dirhams ($32.7 billion) available to the banking sector boost liquidity.“
The report held the banks in Dubai responsible for the inactivity of the real estate market, even though the central bank has taken measures to support the banking sector and the economy, no direct actions have been taken towards the real estate sector...”
RichVille said in a statement.RichVille said Dubai’s Real Estate Regulatory Agency (RERA) had to play a more active role in developing a rescue plan for the market.“
The report... suggested a rescue plan for RERA to play a much needed leading role that surpasses regulating and documenting, to cooperating with the master developers, government bodies, and main investors to develop a rescue plan...,” the firm said.RichVille called on master developers to delay any upcoming payments by six months to avoid default and “panic in the market”.
The Dubai government last week set up a committee to recommend ways to tackle the impact of the financial crisis on the emirate's economy, including real estate and banks.Mohamed Ali Alabbar, chairman of Emaar Properties and of the new committee, said on Monday Dubai would pull back on its building spree in light of the financial crisis.
RichVille, a real estate asset management firm, on Wednesday accused authorities in Dubai of not doing enough to support the faltering real estate market.The company, part of Dubai-based conglomerate Tharaa Holding, said in a report that authorities needed to take direct action to revive the market, which saw real estate prices fall four percent between September and October, according to HSBC.
The global financial crisis has hit demand for real estate in Dubai from foreign investors, which make up a large percentage of buyers, while tightening liquidity has made home financing more difficult.
RichVille blamed the downturn in the market on banks, which have tightened lending conditions in recent months despite the UAE central bank making 120 billion dirhams ($32.7 billion) available to the banking sector boost liquidity.“
The report held the banks in Dubai responsible for the inactivity of the real estate market, even though the central bank has taken measures to support the banking sector and the economy, no direct actions have been taken towards the real estate sector...”
RichVille said in a statement.RichVille said Dubai’s Real Estate Regulatory Agency (RERA) had to play a more active role in developing a rescue plan for the market.“
The report... suggested a rescue plan for RERA to play a much needed leading role that surpasses regulating and documenting, to cooperating with the master developers, government bodies, and main investors to develop a rescue plan...,” the firm said.RichVille called on master developers to delay any upcoming payments by six months to avoid default and “panic in the market”.
The Dubai government last week set up a committee to recommend ways to tackle the impact of the financial crisis on the emirate's economy, including real estate and banks.Mohamed Ali Alabbar, chairman of Emaar Properties and of the new committee, said on Monday Dubai would pull back on its building spree in light of the financial crisis.
Property developers reassessing sales strategies
Property developers reassessing sales strategies
Dubai-based developers are putting sales of their properties on hold until the situation improves in the emirate's real estate market, prominent developers said yesterday."We will definitely reassess sales strategies in the light of the current market conditions. Everything is under review now and we have no new plans for the near future," said Ali Mansour, Project Director, for Nakheel's Palm Jebel Ali.
"There are no sales on Palm Jebel Ali happening as of now.
The only sales that happened were in the year 2003–2004," said Mansour.Palm Jebel Ali is the second of the Palm trilogy being developed by Nakheel.
It is located right in the heart of Jebel Ali, close to the Al Maktoum International Airport and the Dubai Waterfront development. So far, Nakheel has sold 52 plots of land in the Crescent A, 504 units of waterhomes and 1,300 villas at development.According to Nakheel, Palm Jebel Ali will feature signature villas, garden villas and also a wide range of luxury apartments, town homes and penthouses.It is expected that around 300,000 people will live on the development."Palm Jebel Ali has an advantageous location in a totally virgin area of Dubai.
By the time it is completed, the Al Maktoum International Airport would already have become operational.
Three phases of extension at the Jebel Ali Harbour would also be complete when the Palm Jebel Ali is delivered.
There will be some high-end and luxurious components at the Palm Jebel Ali, but the project will also have other components catering to various market segments," said Mansour.Limitless, too, has not launched the sales of its Arabian Canal project. Ian Rainelan Raine,
Limitless' Project Director for the Arabian Canal, said: "We will judge when the time is right to start selling. We have registered a huge amount of interest in the Arabian Canal project but we are not registering sales at the moment."The Arabian Canal will be one of the longest man-made canals. The excavation of the canal will start near the Dubai Marina area and it will flow inland around the planned Al Maktoum International Airport. It will then meet the sea at the outer end of the Palm Jebel Ali.
Dubai Waterfront will be the first phase of the larger Arabian Canal effort. The developer said financing for the first stage of the project has been completed.
Policy review Rufi Real Estate, Dubai-based real estate developer, is revisiting its strategies and has deferred launch of some of its realty projects until the second quarter of 2009."We were supposed to launch two residential towers in Meydaan and projects in The World, where we have bought three islands. But we have postponed all that for now," Mehrooz Manzoor Rufi, Director, Rufi Real Estate, told Emirates Business.Rufi is optimistic about real estate prices picking up by the middle of 2009 in the emirate.Pre-sales take care of 40 to 50 per cent of construction cost and so the company need not look for external borrowing options, said Rufi
Dubai-based developers are putting sales of their properties on hold until the situation improves in the emirate's real estate market, prominent developers said yesterday."We will definitely reassess sales strategies in the light of the current market conditions. Everything is under review now and we have no new plans for the near future," said Ali Mansour, Project Director, for Nakheel's Palm Jebel Ali.
"There are no sales on Palm Jebel Ali happening as of now.
The only sales that happened were in the year 2003–2004," said Mansour.Palm Jebel Ali is the second of the Palm trilogy being developed by Nakheel.
It is located right in the heart of Jebel Ali, close to the Al Maktoum International Airport and the Dubai Waterfront development. So far, Nakheel has sold 52 plots of land in the Crescent A, 504 units of waterhomes and 1,300 villas at development.According to Nakheel, Palm Jebel Ali will feature signature villas, garden villas and also a wide range of luxury apartments, town homes and penthouses.It is expected that around 300,000 people will live on the development."Palm Jebel Ali has an advantageous location in a totally virgin area of Dubai.
By the time it is completed, the Al Maktoum International Airport would already have become operational.
Three phases of extension at the Jebel Ali Harbour would also be complete when the Palm Jebel Ali is delivered.
There will be some high-end and luxurious components at the Palm Jebel Ali, but the project will also have other components catering to various market segments," said Mansour.Limitless, too, has not launched the sales of its Arabian Canal project. Ian Rainelan Raine,
Limitless' Project Director for the Arabian Canal, said: "We will judge when the time is right to start selling. We have registered a huge amount of interest in the Arabian Canal project but we are not registering sales at the moment."The Arabian Canal will be one of the longest man-made canals. The excavation of the canal will start near the Dubai Marina area and it will flow inland around the planned Al Maktoum International Airport. It will then meet the sea at the outer end of the Palm Jebel Ali.
Dubai Waterfront will be the first phase of the larger Arabian Canal effort. The developer said financing for the first stage of the project has been completed.
Policy review Rufi Real Estate, Dubai-based real estate developer, is revisiting its strategies and has deferred launch of some of its realty projects until the second quarter of 2009."We were supposed to launch two residential towers in Meydaan and projects in The World, where we have bought three islands. But we have postponed all that for now," Mehrooz Manzoor Rufi, Director, Rufi Real Estate, told Emirates Business.Rufi is optimistic about real estate prices picking up by the middle of 2009 in the emirate.Pre-sales take care of 40 to 50 per cent of construction cost and so the company need not look for external borrowing options, said Rufi
Tuesday, 25 November 2008
Dubai reassures creditors amid crisis - The National Newspaper
Dubai reassures creditors amid crisis - The National Newspaper
DUBAI //
As the world enters what appears to be the most formidable downturn since the Great Depression, with tremors being felt in the Gulf, the Dubai Government is reassuring its creditors and introducing measures aimed at supporting the property and financial sectors.
Mohammed Ali Alabbar, a member of the Dubai Executive Council, told an audience at the Dubai International Financial Centre that it was time to address the new economic reality.“We are rationalising our expenditures and consolidating our activities,” he said, adding that the country’s property industry would “see more consolidation, especially with third-party developers, who may be facing some lending difficulties”.
Mr Alabbar, who is also chairman of the emirate’s largest developer, Emaar Properties, said Dubai would be able to handle its debt.“The government can and will meet all obligations going forward,” he said, adding that the emirate had debts of US$10 billion (Dh36.73bn), plus a further $70bn with Dubai-affiliated companies balanced by Government assets of $90bn and assets belonging to state-backed companies of $260bn.
He added that a special advisory council had been established to look at each sector of the economy, in particular the property market. The committee is making recommendations to the rulers and will manage the “current and future supply of new projects on to the market” in a bid to slow the decline of prices. The moves this week to reassure the markets have come after large declines in the stock exchanges, a softening of prices of new homes and a first round of layoffs at many property developers — all developments that would have been unthinkable just six months ago at the height of the property boom.
The most dramatic development for the property market came earlier this week with the announcement by the Government that it would merge two banks and the country’s two largest home finance providers into a rescue vehicle called Emirates Development Bank. The new bank would receive funds from the federal government and become the largest provider of home loans in the country, Mr Alabbar said. A source close to the new bank said the move was the Government’s most comprehensive attempt yet to fight the crisis.
“This is the Government’s message,” the source said.
“We are providing full support to the key businesses.”In the past three months, the Government has pledged Dh120 billion to help banks fill the funding gap created when foreign investors began withdrawing their money from the region this summer. However, bankers have expressed reluctance to re-lend the emergency money to home-loan companies or real estate developers, for fear of exposing themselves further to a rapidly declining property market.
Amlak Finance especially showed signs of strain last week when it announced it would issue no new home loans until it had reviewed its credit policy. Other mortgage lenders have either stopped lending or cut their loan-to-value ratios dramatically, making it difficult for both buyers and speculators — now without any choice but to hold on to their purchases — to get financing. Cash flow at property development companies has all but stopped and distressed buyers have started offering discounts of as much as a third on the resale market.
The impact is already being felt at the biggest companies.
Emaar, whose shares fell 9.5 per cent in trading yesterday, has seen its share price drop by 83.4 per cent since the beginning of the year. Amlak and Tamweel, which have had their shares suspending from trading pending details of the merger, have lost 80.1 and 85.6 per cent since the beginning of the year, respectively.The decision to merge Amlak and Tamweel with Real Estate Bank and Emirates Industrial Bank into Emirates Development Bank is widely seen by analysts as a move to reverse the slide of the property sector by restoring financing for would-be buyers and speculators. However, both the Dubai Financial Market and the Abu Dhabi Index fell yesterday, 5.3 per cent and 3.4 respectively, with the property and finance sectors worst hit, indicating that investors remain sceptical of how effective such measures will be.
The new institution will “really be a strong entity”, Mr Alabbar said. “It means that this country is serious about consolidation during interesting times. This structure will facilitate the lending and move liquidity into sectors needed, especially in real estate.”He added the Government would be “cautious going forward, but will increase flexibility of real estate funding”.This is likely to be just the first in a number of takeovers, with a dramatic restructuring of the market still on the horizon, analysts said.
Sofia el Boury, a banking analyst at Shuaa Capital, said a wave of consolidations was likely in the market.
During downturns, “weak companies become ideal targets for acquisitions by profitable, highly liquid and well-capitalised institutions”, she said.
There is also a growing sense that a push to strengthen the federal union has been sped up in response to the credit crunch. However, Mr Alabbar rejected the suggestion that Abu Dhabi was preparing to bail out Dubai.
“It is not true,” said Mr Alabbar. “Dubai has received no offer either directly or indirectly from Abu Dhabi or any other party on earth,” he said when asked if Dubai’s assets were for sale.*
additional reporting by
Travis Pantinmailto:Pantinbhope@thenational.ae
shamdan@thenational.ae
afoxwell@thenational.ae
DUBAI //
As the world enters what appears to be the most formidable downturn since the Great Depression, with tremors being felt in the Gulf, the Dubai Government is reassuring its creditors and introducing measures aimed at supporting the property and financial sectors.
Mohammed Ali Alabbar, a member of the Dubai Executive Council, told an audience at the Dubai International Financial Centre that it was time to address the new economic reality.“We are rationalising our expenditures and consolidating our activities,” he said, adding that the country’s property industry would “see more consolidation, especially with third-party developers, who may be facing some lending difficulties”.
Mr Alabbar, who is also chairman of the emirate’s largest developer, Emaar Properties, said Dubai would be able to handle its debt.“The government can and will meet all obligations going forward,” he said, adding that the emirate had debts of US$10 billion (Dh36.73bn), plus a further $70bn with Dubai-affiliated companies balanced by Government assets of $90bn and assets belonging to state-backed companies of $260bn.
He added that a special advisory council had been established to look at each sector of the economy, in particular the property market. The committee is making recommendations to the rulers and will manage the “current and future supply of new projects on to the market” in a bid to slow the decline of prices. The moves this week to reassure the markets have come after large declines in the stock exchanges, a softening of prices of new homes and a first round of layoffs at many property developers — all developments that would have been unthinkable just six months ago at the height of the property boom.
The most dramatic development for the property market came earlier this week with the announcement by the Government that it would merge two banks and the country’s two largest home finance providers into a rescue vehicle called Emirates Development Bank. The new bank would receive funds from the federal government and become the largest provider of home loans in the country, Mr Alabbar said. A source close to the new bank said the move was the Government’s most comprehensive attempt yet to fight the crisis.
“This is the Government’s message,” the source said.
“We are providing full support to the key businesses.”In the past three months, the Government has pledged Dh120 billion to help banks fill the funding gap created when foreign investors began withdrawing their money from the region this summer. However, bankers have expressed reluctance to re-lend the emergency money to home-loan companies or real estate developers, for fear of exposing themselves further to a rapidly declining property market.
Amlak Finance especially showed signs of strain last week when it announced it would issue no new home loans until it had reviewed its credit policy. Other mortgage lenders have either stopped lending or cut their loan-to-value ratios dramatically, making it difficult for both buyers and speculators — now without any choice but to hold on to their purchases — to get financing. Cash flow at property development companies has all but stopped and distressed buyers have started offering discounts of as much as a third on the resale market.
The impact is already being felt at the biggest companies.
Emaar, whose shares fell 9.5 per cent in trading yesterday, has seen its share price drop by 83.4 per cent since the beginning of the year. Amlak and Tamweel, which have had their shares suspending from trading pending details of the merger, have lost 80.1 and 85.6 per cent since the beginning of the year, respectively.The decision to merge Amlak and Tamweel with Real Estate Bank and Emirates Industrial Bank into Emirates Development Bank is widely seen by analysts as a move to reverse the slide of the property sector by restoring financing for would-be buyers and speculators. However, both the Dubai Financial Market and the Abu Dhabi Index fell yesterday, 5.3 per cent and 3.4 respectively, with the property and finance sectors worst hit, indicating that investors remain sceptical of how effective such measures will be.
The new institution will “really be a strong entity”, Mr Alabbar said. “It means that this country is serious about consolidation during interesting times. This structure will facilitate the lending and move liquidity into sectors needed, especially in real estate.”He added the Government would be “cautious going forward, but will increase flexibility of real estate funding”.This is likely to be just the first in a number of takeovers, with a dramatic restructuring of the market still on the horizon, analysts said.
Sofia el Boury, a banking analyst at Shuaa Capital, said a wave of consolidations was likely in the market.
During downturns, “weak companies become ideal targets for acquisitions by profitable, highly liquid and well-capitalised institutions”, she said.
There is also a growing sense that a push to strengthen the federal union has been sped up in response to the credit crunch. However, Mr Alabbar rejected the suggestion that Abu Dhabi was preparing to bail out Dubai.
“It is not true,” said Mr Alabbar. “Dubai has received no offer either directly or indirectly from Abu Dhabi or any other party on earth,” he said when asked if Dubai’s assets were for sale.*
additional reporting by
Travis Pantinmailto:Pantinbhope@thenational.ae
shamdan@thenational.ae
afoxwell@thenational.ae
Monday, 24 November 2008
Property investors rally to the cause. - The National Newspaper
Property investors rally to the cause. - The National Newspaper
An amendment to a property law in Dubai has brought together a group of angry off-plan buyers who are fearful of losing a third of their investment to developers they believe may not even proceed with construction. According to the new amendment, off-plan buyers wishing to halt their payments have to cancel their contract and forfeit 30 per cent of the total value of the property, instead of only 30 per cent of the money they have paid.
The investors, who formed their group after an online forum on the issue, have yet to see evidence of construction on their projects and fear losing more of their money to developers in the current global slowdown if they continue their payments – but under the new amendment they could lose a third of their properties’ value if they do not. The new administrative circular was issued by the Dubai Land Department on Nov 10 concerning amended Law 13 on the pre-registration of off-plan properties, which was issued in August.
“Many investors have already paid 20 per cent to 50 per cent in projects which haven’t even started, hence they stopped payments in order to avoid further losses caused by possible bankruptcy of the developer,” said Tommy Carlsson, one of the organisers of the Dubai Property Investors group.
“Developers are misusing this interpretation of the law to terminate as many contracts as possible and forfeit our funds instead of finding solutions together with investors.”
Investors fear that developers who already know they cannot proceed with a project will keep the 30 per cent and then later on cancel the project without needing to refund buyers.
The group, which met for the second time on Sunday and is planning to hire a lawyer to represent them, is asking for two things. It suggests that before allowing a developer to cancel contracts, the developer must first submit the audit of its escrow to the Land Department. According to Law 8, developers must audit their accounts, but many of them have not done this yet. “We want developers to prove they have the ability to build,” said Nigel Knight, a co-founder of the group.
Second, contract cancellations should be put on hold if the client has already paid 20 per cent and construction has not started, with the payment plan proceeding only when construction actually starts.“We see that as the responsibility of the Government to make investigations about the developers and find out whom we can trust and who is not OK. We only ask the Government to protect us,” Mr Mohammed said. “We got e-mails from a developer saying we were not allowed to form a group. Somebody even tried to hack [into] our e-mail account.”
Among the developers that investors are concerned about is Schön Properties.
“Some people paid over 60 per cent of [Schön’s] Dubai Lagoon,” said Mr Mohammed, the co-founder of the investors group who did not wish to give his family name. “People ask why they should continue to pay. The developer hasn’t even started construction of their units. The developer is saying that if they don’t continue [to pay] they will cancel the contract and forfeit their money.”
An amendment to a property law in Dubai has brought together a group of angry off-plan buyers who are fearful of losing a third of their investment to developers they believe may not even proceed with construction. According to the new amendment, off-plan buyers wishing to halt their payments have to cancel their contract and forfeit 30 per cent of the total value of the property, instead of only 30 per cent of the money they have paid.
The investors, who formed their group after an online forum on the issue, have yet to see evidence of construction on their projects and fear losing more of their money to developers in the current global slowdown if they continue their payments – but under the new amendment they could lose a third of their properties’ value if they do not. The new administrative circular was issued by the Dubai Land Department on Nov 10 concerning amended Law 13 on the pre-registration of off-plan properties, which was issued in August.
“Many investors have already paid 20 per cent to 50 per cent in projects which haven’t even started, hence they stopped payments in order to avoid further losses caused by possible bankruptcy of the developer,” said Tommy Carlsson, one of the organisers of the Dubai Property Investors group.
“Developers are misusing this interpretation of the law to terminate as many contracts as possible and forfeit our funds instead of finding solutions together with investors.”
Investors fear that developers who already know they cannot proceed with a project will keep the 30 per cent and then later on cancel the project without needing to refund buyers.
The group, which met for the second time on Sunday and is planning to hire a lawyer to represent them, is asking for two things. It suggests that before allowing a developer to cancel contracts, the developer must first submit the audit of its escrow to the Land Department. According to Law 8, developers must audit their accounts, but many of them have not done this yet. “We want developers to prove they have the ability to build,” said Nigel Knight, a co-founder of the group.
Second, contract cancellations should be put on hold if the client has already paid 20 per cent and construction has not started, with the payment plan proceeding only when construction actually starts.“We see that as the responsibility of the Government to make investigations about the developers and find out whom we can trust and who is not OK. We only ask the Government to protect us,” Mr Mohammed said. “We got e-mails from a developer saying we were not allowed to form a group. Somebody even tried to hack [into] our e-mail account.”
Among the developers that investors are concerned about is Schön Properties.
“Some people paid over 60 per cent of [Schön’s] Dubai Lagoon,” said Mr Mohammed, the co-founder of the investors group who did not wish to give his family name. “People ask why they should continue to pay. The developer hasn’t even started construction of their units. The developer is saying that if they don’t continue [to pay] they will cancel the contract and forfeit their money.”
Amlak and Tamweel to sign on the dotted line - The National Newspaper
Amlak and Tamweel to sign on the dotted line - The National Newspaper
Back-door nationalisation.
A sign of distress in the banking sector. A prop to spur further lending for home buyers.
These are just some of the varied reactions to the news that the country’s two largest home finance providers will merge under the umbrella of a federal bank. Analysts are also saying that this is the first major government intervention to prevent the worsening property economy from sliding further as a result of the global credit crisis – and a welcome move at that.
“The whole landscape is changing,” said Chris Dommett, the chief executive at the regional office of mortgage advisory John Charcol. “This makes a lot of sense right now. It shows the emirates are thinking on a countrywide level.”
Amlak Finance and Tamweel, two companies with roughly Dh25 billion (US$6.8bn) in assets between them, will merge and become part of Real Estate Bank, a relatively unknown entity with offices in Abu Dhabi and Dubai, wholly owned by the Ministry of Finance and Industry, the state news agency WAM reported on Saturday.
The result would be a new home finance provider that would “serve as the cornerstone of the mortgage market”, said one government official, according to WAM. However, one senior international Dubai-based banker said it was still not clear whether the two institutions’ main problems had been addressed. “In theory, it is a good idea. But how do you turn two institutions that are in a mess into one combined entity that works well? You just end up with one giant mess.
Both Amlak and Tamweel need to merge with a major bank because what they lack is funds, and banks have that from their depositors.
However, hardly anybody had heard of the Real Estate Bank until now. Is it well capitalised?
Nobody seems to know.”
Some observers credit the authorities with trying to do something, even if the outcome may still be uncertain. The move comes as the credit pressures on property developers and home finance companies have become especially acute.
Amlak announced last week it would stop issuing new home loans as it reviewed its credit policy. Prices have begun softening across the country and once vibrant salesrooms for new towers are patronised by only a trickle of would-be buyers. This has led to a first round of layoffs at property developers and delays of projects that have yet to begin construction.While speculators have been busy trying to get out of the market because price growth has slowed, many regular end-users are still out to buy a home. But without access to affordable loans, they too have been frozen out of the market.
“The business model of Amlak and Tamweel has collapsed,” said Mohieddine Kronfol, the managing director of asset management at Algebra Capital. “As mortgage companies, their business models relied on wholesale funding, interbank borrowing and syndicated loans. All those channels of funding have been compromised by the credit crunch.”Mr Kronfol said the new national home finance provider could begin offering more attractive home loans because it would probably have access to government funds.
The new entity might also have the ability to collect deposits, allowing it another way to keep financing going during down cycles. Amlak and Tamweel are not licensed to collect deposits.
The announcement will push the relatively unknown Real Estate Bank into the spotlight as a leading financial institution in the property industry.
The bank was set up in 1981 and made operational in 1999 to provide loans to Emiratis and government-controlled companies. According to its website, it has only 7,000 customers and was started with Dh2bn in capital. Amlak and Tamweel, meanwhile, have combined assets of Dh25bn and tens of thousands of customers. Combined, they promise to be the largest property finance firm in the Middle East. The problem is neither of them have any money to lend to home buyers.
Mahmood al Mahmood, the chief executive of Al Qudra Holding, hinted last week that Real Estate Bank could take an even larger role in the property economy by also lending to distressed property developers.“We have had this entity for years, but it has not taken a large role,” Mr Mahmood said. “Today, we have an urgent need for it... There are discussions to bring it on track to take part in financing some of the mortgage companies and real estate developers. It would extend facilities whenever needed.”
Still, the announcement appeared to raise as many questions as it answered. No details were given about the structure of the new-look Real Estate Bank or what would happen to Amlak and Tamweel during the merger.Raj Madha, an analyst at EFG Hermes, said the announcement was “extremely positive” for improving the operations of the two companies, but “the main question is what will happen to shareholders”. Like many such mergers, the devil will be in the detail.
Eric Milne, the head of banking and finance for the region at Simmons and Simmons Dubai, said “there isn’t much precedent” for this type of merger. He suspected the merger would need majority shareholder approval.The two main possibilities for shareholders is that they will either be bought out by the Government and the shares will be delisted from the stock exchange, or the shares will be converted into shares in the new company. Either way, the Government is likely to take a controlling interest.
The companies involved provided no further details of the merger. Wasif Saifi, the chief executive of Tamweel, said the company “had been given the details” of the merger under Real Estate Bank and “are just looking at all the aspects of it”.The merger marks the beginning of what is likely to be a series of consolidations in the property industry, analysts said.“We are still on the cusp of a downturn in the UAE,” said John McGaw, the chief executive of the regional office of Killik & Co. “This merger will create a stronger entity. It’s something that needed to be done.”
His optimism will be greeted with relief by government officials, but last night home buyers were demanding the answer to one question: when will the home finance market resume? “This is the one million dollar question,” said the governor of the Central Bank, Sultan Nasser al Suwaidi, said over the weekend.bhope@thenational.aetpantin@thenational.ae
Back-door nationalisation.
A sign of distress in the banking sector. A prop to spur further lending for home buyers.
These are just some of the varied reactions to the news that the country’s two largest home finance providers will merge under the umbrella of a federal bank. Analysts are also saying that this is the first major government intervention to prevent the worsening property economy from sliding further as a result of the global credit crisis – and a welcome move at that.
“The whole landscape is changing,” said Chris Dommett, the chief executive at the regional office of mortgage advisory John Charcol. “This makes a lot of sense right now. It shows the emirates are thinking on a countrywide level.”
Amlak Finance and Tamweel, two companies with roughly Dh25 billion (US$6.8bn) in assets between them, will merge and become part of Real Estate Bank, a relatively unknown entity with offices in Abu Dhabi and Dubai, wholly owned by the Ministry of Finance and Industry, the state news agency WAM reported on Saturday.
The result would be a new home finance provider that would “serve as the cornerstone of the mortgage market”, said one government official, according to WAM. However, one senior international Dubai-based banker said it was still not clear whether the two institutions’ main problems had been addressed. “In theory, it is a good idea. But how do you turn two institutions that are in a mess into one combined entity that works well? You just end up with one giant mess.
Both Amlak and Tamweel need to merge with a major bank because what they lack is funds, and banks have that from their depositors.
However, hardly anybody had heard of the Real Estate Bank until now. Is it well capitalised?
Nobody seems to know.”
Some observers credit the authorities with trying to do something, even if the outcome may still be uncertain. The move comes as the credit pressures on property developers and home finance companies have become especially acute.
Amlak announced last week it would stop issuing new home loans as it reviewed its credit policy. Prices have begun softening across the country and once vibrant salesrooms for new towers are patronised by only a trickle of would-be buyers. This has led to a first round of layoffs at property developers and delays of projects that have yet to begin construction.While speculators have been busy trying to get out of the market because price growth has slowed, many regular end-users are still out to buy a home. But without access to affordable loans, they too have been frozen out of the market.
“The business model of Amlak and Tamweel has collapsed,” said Mohieddine Kronfol, the managing director of asset management at Algebra Capital. “As mortgage companies, their business models relied on wholesale funding, interbank borrowing and syndicated loans. All those channels of funding have been compromised by the credit crunch.”Mr Kronfol said the new national home finance provider could begin offering more attractive home loans because it would probably have access to government funds.
The new entity might also have the ability to collect deposits, allowing it another way to keep financing going during down cycles. Amlak and Tamweel are not licensed to collect deposits.
The announcement will push the relatively unknown Real Estate Bank into the spotlight as a leading financial institution in the property industry.
The bank was set up in 1981 and made operational in 1999 to provide loans to Emiratis and government-controlled companies. According to its website, it has only 7,000 customers and was started with Dh2bn in capital. Amlak and Tamweel, meanwhile, have combined assets of Dh25bn and tens of thousands of customers. Combined, they promise to be the largest property finance firm in the Middle East. The problem is neither of them have any money to lend to home buyers.
Mahmood al Mahmood, the chief executive of Al Qudra Holding, hinted last week that Real Estate Bank could take an even larger role in the property economy by also lending to distressed property developers.“We have had this entity for years, but it has not taken a large role,” Mr Mahmood said. “Today, we have an urgent need for it... There are discussions to bring it on track to take part in financing some of the mortgage companies and real estate developers. It would extend facilities whenever needed.”
Still, the announcement appeared to raise as many questions as it answered. No details were given about the structure of the new-look Real Estate Bank or what would happen to Amlak and Tamweel during the merger.Raj Madha, an analyst at EFG Hermes, said the announcement was “extremely positive” for improving the operations of the two companies, but “the main question is what will happen to shareholders”. Like many such mergers, the devil will be in the detail.
Eric Milne, the head of banking and finance for the region at Simmons and Simmons Dubai, said “there isn’t much precedent” for this type of merger. He suspected the merger would need majority shareholder approval.The two main possibilities for shareholders is that they will either be bought out by the Government and the shares will be delisted from the stock exchange, or the shares will be converted into shares in the new company. Either way, the Government is likely to take a controlling interest.
The companies involved provided no further details of the merger. Wasif Saifi, the chief executive of Tamweel, said the company “had been given the details” of the merger under Real Estate Bank and “are just looking at all the aspects of it”.The merger marks the beginning of what is likely to be a series of consolidations in the property industry, analysts said.“We are still on the cusp of a downturn in the UAE,” said John McGaw, the chief executive of the regional office of Killik & Co. “This merger will create a stronger entity. It’s something that needed to be done.”
His optimism will be greeted with relief by government officials, but last night home buyers were demanding the answer to one question: when will the home finance market resume? “This is the one million dollar question,” said the governor of the Central Bank, Sultan Nasser al Suwaidi, said over the weekend.bhope@thenational.aetpantin@thenational.ae
First came a boom, then fireworks, but is Dubai’s property market in trouble? - Times Online
First came a boom, then fireworks, but is Dubai’s property market in trouble? - Times Online
For a few hours, the glitz and the glamour, the red carpet and, above all, the astonishing fireworks disguised the reality that is dawning over Dubai – but only for those few hours. Not even the £13.5 million extravaganza that launched the £1 billion Atlantis Resort could hide the fact that Dubai’s property boom, which has fuelled double-digit growth for five years, is showing signs of turning to bust.
“It’s been ten times worse than expected.
The liquidity is absolutely frozen. There’s no money. It’s just gone.
If the Government doesn’t act really quickly, we’ll slip into an Indonesian-style bust,” said one of Dubai’s leading bankers, who did not want to be named. He was echoing a growing consensus in the region. “These last six weeks have changed the face of the Earth,” he said.
Dubai’s property boom was fuelled largely by investors who bought properties off-plan. Most had no intention of ever living in the buildings, intending, instead, to sell them on and collect a tidy profit. Most also used borrowed money to finance their payments, according to analysts, intending to use a cut of their profits to pay back their loans.
But in recent weeks credit has virtually evaporated, with international and local banks tightening credit. International investors have grown nervous as local economists have downgraded Dubai’s economic outlook. And demand for properties has fallen into a slump, with job losses and the cancellations of new developments adding up.
A striking example of Dubai’s old and new realities was apparent last Thursday. As celebrity guests were whisked away by private helicopters from the Atlantis resort, residents on The Palm Jumeirah, the artificial island that is home to the hotel, were left to digest bad news. The value of their properties has fallen as much as 40 per cent since September, according to estate agents, as buyers struggle to secure mortgages. When the development, built by the state-owned Nakheel, went on to the market seven years ago, its luxury villas were snapped up by the likes David Beckham and Michael Schumacher for up to £5 million.
Today Nakheel estimates that British buyers own nearly a quarter of the villas on the Palm.
Last week Amlak, the country’s largest lender, said that it would suspend new loans completely because of a lack of funds, a move unprecedented in this market. Yesterday the Government merged Amlak and Tamweel, the country’s other top lender, into the federally owned Real Estate Bank in an effort to loosen lending by pooling resources.
“People have really begun to fear a crash in the market,” Chris Dommett, chief executive of John Charcol Dubai, a mortgage advisory firm, said. “Banks aren’t suspending loans because of a lack of demand, they’re doing it because they don’t have any liquidity. Transactions have just stopped and everybody is holding their breath, waiting to see what will happen.”
According to new data from HSBC, property prices fell last month by 4 per cent in Dubai and 5 per cent in neigh-bouring Abu Dhabi. The credit squeeze is having a devastating effect on existing buyers, who no longer are able to meet payments on their existing investment properties. “Anybody who’s bought into this market to flip property and make a quick profit – they’re all getting crucified,” another banker said, adding that several of his clients were trying to “wriggle out” of their contracts with developers for properties that they had bought off-plan.
Brokers are reporting a sharp increase in panic-selling. Last week the Dubai-based Elysian Real Estate sent a text message to up to 40,000 mobile phones advertising distressed property sales. The text offered a luxury six-bedroom, six-bathroom villa in Dubailand, a multibillion-dollar luxury theme park on the outskirts of the city-state, at an advertised cost of about £3.86 million – about half its original price. Robert Macnair, Elysian’s sales director, told The Times: “We have had a sharp increase in clients who are looking to sell because the market has done what it’s done. There is a new urgency to these sales.
“The market has slowed dramatically.
On a number of occasions, these investors or speculators actually can’t afford to make the next payment.”
Developers are also feeling the pressure. Damac, one of Dubai’s leading developers, cut 200 jobs last week. Nakheel has also said that it will scale back construction plans for its next man-made island, the Palm Deira.
Dubai is considering stronger measures to restore lending, but analysts say the market lacks the maturity to embrace them. Banks, for example, have been unwilling so far to tap into billions of dollars of emergency funding made available by the Government in recent months as the international economy heads for global recession.
Economists say that the Government needs to take a tougher stance. If credit does loosen, some predict a quick rebound.
Simon Williams, HSBC’s Middle East economist, said: “Real estate markets anywhere in the world are volatile . . . but they tend to work themselves out as the real economy tends to perform well, as it does in the Gulf.
“I still see very low vacancy rates across the UAE and rents are high. Those two key variables suggest that the property market will endure.”
For a few hours, the glitz and the glamour, the red carpet and, above all, the astonishing fireworks disguised the reality that is dawning over Dubai – but only for those few hours. Not even the £13.5 million extravaganza that launched the £1 billion Atlantis Resort could hide the fact that Dubai’s property boom, which has fuelled double-digit growth for five years, is showing signs of turning to bust.
“It’s been ten times worse than expected.
The liquidity is absolutely frozen. There’s no money. It’s just gone.
If the Government doesn’t act really quickly, we’ll slip into an Indonesian-style bust,” said one of Dubai’s leading bankers, who did not want to be named. He was echoing a growing consensus in the region. “These last six weeks have changed the face of the Earth,” he said.
Dubai’s property boom was fuelled largely by investors who bought properties off-plan. Most had no intention of ever living in the buildings, intending, instead, to sell them on and collect a tidy profit. Most also used borrowed money to finance their payments, according to analysts, intending to use a cut of their profits to pay back their loans.
But in recent weeks credit has virtually evaporated, with international and local banks tightening credit. International investors have grown nervous as local economists have downgraded Dubai’s economic outlook. And demand for properties has fallen into a slump, with job losses and the cancellations of new developments adding up.
A striking example of Dubai’s old and new realities was apparent last Thursday. As celebrity guests were whisked away by private helicopters from the Atlantis resort, residents on The Palm Jumeirah, the artificial island that is home to the hotel, were left to digest bad news. The value of their properties has fallen as much as 40 per cent since September, according to estate agents, as buyers struggle to secure mortgages. When the development, built by the state-owned Nakheel, went on to the market seven years ago, its luxury villas were snapped up by the likes David Beckham and Michael Schumacher for up to £5 million.
Today Nakheel estimates that British buyers own nearly a quarter of the villas on the Palm.
Last week Amlak, the country’s largest lender, said that it would suspend new loans completely because of a lack of funds, a move unprecedented in this market. Yesterday the Government merged Amlak and Tamweel, the country’s other top lender, into the federally owned Real Estate Bank in an effort to loosen lending by pooling resources.
“People have really begun to fear a crash in the market,” Chris Dommett, chief executive of John Charcol Dubai, a mortgage advisory firm, said. “Banks aren’t suspending loans because of a lack of demand, they’re doing it because they don’t have any liquidity. Transactions have just stopped and everybody is holding their breath, waiting to see what will happen.”
According to new data from HSBC, property prices fell last month by 4 per cent in Dubai and 5 per cent in neigh-bouring Abu Dhabi. The credit squeeze is having a devastating effect on existing buyers, who no longer are able to meet payments on their existing investment properties. “Anybody who’s bought into this market to flip property and make a quick profit – they’re all getting crucified,” another banker said, adding that several of his clients were trying to “wriggle out” of their contracts with developers for properties that they had bought off-plan.
Brokers are reporting a sharp increase in panic-selling. Last week the Dubai-based Elysian Real Estate sent a text message to up to 40,000 mobile phones advertising distressed property sales. The text offered a luxury six-bedroom, six-bathroom villa in Dubailand, a multibillion-dollar luxury theme park on the outskirts of the city-state, at an advertised cost of about £3.86 million – about half its original price. Robert Macnair, Elysian’s sales director, told The Times: “We have had a sharp increase in clients who are looking to sell because the market has done what it’s done. There is a new urgency to these sales.
“The market has slowed dramatically.
On a number of occasions, these investors or speculators actually can’t afford to make the next payment.”
Developers are also feeling the pressure. Damac, one of Dubai’s leading developers, cut 200 jobs last week. Nakheel has also said that it will scale back construction plans for its next man-made island, the Palm Deira.
Dubai is considering stronger measures to restore lending, but analysts say the market lacks the maturity to embrace them. Banks, for example, have been unwilling so far to tap into billions of dollars of emergency funding made available by the Government in recent months as the international economy heads for global recession.
Economists say that the Government needs to take a tougher stance. If credit does loosen, some predict a quick rebound.
Simon Williams, HSBC’s Middle East economist, said: “Real estate markets anywhere in the world are volatile . . . but they tend to work themselves out as the real economy tends to perform well, as it does in the Gulf.
“I still see very low vacancy rates across the UAE and rents are high. Those two key variables suggest that the property market will endure.”
Saturday, 22 November 2008
Ratings agency puts ETA Group on credit watch - Real Estate - ArabianBusiness.com
Ratings agency puts ETA Group on credit watch - Real Estate - ArabianBusiness.com
Ratings agency Standard & Poor's put Dubai-based ETA Group on negative watch on Thursday with a view to downgrading its credit rating due to concerns over the construction and property-dominated firm's increased leverage.
Standard & Poor's placed the firm, whose property division has a $10 billion portfolio, on CreditWatch with negative implications with long-term BBB- corporate credit rating, the ratings agency said in a statement.It also put a 'BBB-' debt rating on a $300 million senior unsecured bank loan due 2012 issued by subsidiaries Emirates Trading Agency, ETA Star Holdings, and Associated Construction and Investments Co.
The potential downgrade to junk rating is the latest indication Dubai-based companies are feeling the squeeze from tighter lending conditions, a fall in property prices and a collapse in investor confidence as the global credit crunch begins to sweep across the Gulf Arab region's trading hub."These actions are due to concerns over increasing financial leverage, the likely adverse effect of the continuing global economic slowdown on ETA's cyclical activities, and low levels of headroom under financial covenants," said Standard & Poor's credit analyst Stuart Clements.ETA's construction unit is the sixth largest UAE contractor, according to a survey by London-based MEED magazine.
Its real estate arm ETA Star Properties said in October it planned to sell Islamic bonds worth up to $200 million in the first quarter of next year to fund expansion in North Africa and Europe and was planning to develop residential and office towers in the Russian capital Moscow with a value of $600 million next year."
ETA's debt levels have risen significantly in recent years to meet increasing working capital demands from both higher commodity prices and the company's rapid growth in revenue," S&P said.The group also operates in mechanical engineering, car trading and shipping - all sectors "considered to be highly sensitive to economic conditions"."The recent collapse in prices in the dry bulk shipping market (81 percent of ETA's fleet), of about 90 percent from the 2008 peak, may put pressure on some of its time charter counterparties and lead to some renegotiations," S&P said.S&P will conclude the CreditWatch within 90 days.
ETA Star executive director Abid Junaid could not immediately be reached for comment. (Reuters)
Ratings agency Standard & Poor's put Dubai-based ETA Group on negative watch on Thursday with a view to downgrading its credit rating due to concerns over the construction and property-dominated firm's increased leverage.
Standard & Poor's placed the firm, whose property division has a $10 billion portfolio, on CreditWatch with negative implications with long-term BBB- corporate credit rating, the ratings agency said in a statement.It also put a 'BBB-' debt rating on a $300 million senior unsecured bank loan due 2012 issued by subsidiaries Emirates Trading Agency, ETA Star Holdings, and Associated Construction and Investments Co.
The potential downgrade to junk rating is the latest indication Dubai-based companies are feeling the squeeze from tighter lending conditions, a fall in property prices and a collapse in investor confidence as the global credit crunch begins to sweep across the Gulf Arab region's trading hub."These actions are due to concerns over increasing financial leverage, the likely adverse effect of the continuing global economic slowdown on ETA's cyclical activities, and low levels of headroom under financial covenants," said Standard & Poor's credit analyst Stuart Clements.ETA's construction unit is the sixth largest UAE contractor, according to a survey by London-based MEED magazine.
Its real estate arm ETA Star Properties said in October it planned to sell Islamic bonds worth up to $200 million in the first quarter of next year to fund expansion in North Africa and Europe and was planning to develop residential and office towers in the Russian capital Moscow with a value of $600 million next year."
ETA's debt levels have risen significantly in recent years to meet increasing working capital demands from both higher commodity prices and the company's rapid growth in revenue," S&P said.The group also operates in mechanical engineering, car trading and shipping - all sectors "considered to be highly sensitive to economic conditions"."The recent collapse in prices in the dry bulk shipping market (81 percent of ETA's fleet), of about 90 percent from the 2008 peak, may put pressure on some of its time charter counterparties and lead to some renegotiations," S&P said.S&P will conclude the CreditWatch within 90 days.
ETA Star executive director Abid Junaid could not immediately be reached for comment. (Reuters)
Property Scandal -Dubai developer demands up to 88% increase on price to pay construction costs | Dubai Property
Dubai developer demands up to 88% increase on price to pay construction costs Dubai Property
original published: AME info
http://www.ameinfo.com/176241.html
The company behind the Prodigy development in Dubai's Jumeirah Village, MiNC, has sent a letter to investors asking for extra capital to cover construction costs after cash flow shortages caused by the withdrawal of project financing by the two funding banks.
The letter from MiNC's CEO explains the company's financial situation to investors. MiNC says that despite the land purchase being finalised in October 2006, Nakheel only actually delivered the land for construction in May 2008. This has led to: '
A significant negative impact on the project; a doubling of construction-related professional fees and a large increase in government imposed costs.' In addition: 'The arrival of the global financial crisis has had a severe impact on the monies MiNC has available to build Prodigy 1.
We are no longer able to subsidise construction of the project; the project needs to be self-funded as originally intended.'
MiNC faces two further problems. New regulations introduced by the Dubai government have meant that the company's original economic blueprint of using finances from the whole project to fund construction on Prodigy 1 is no longer legal. This has then been compounded by the withdrawal of project financing by two local banks.
Difficult financial situation'We are in an extremely difficult situation,' Simon Everest, Director of Operations at MiNC told AME Info. 'Banks have pulled all the finance, so we have the choice of either sitting, doing nothing and waiting it out, like some of our competitors are doing, or we need to find another solution.' The problems have meant that though most of the units in the seven towers have been sold, and the company's escrow accounts are up to date, the project is no longer financially viable. MiNC claims that it would make a 'significant and material loss if it were to build this project' and it 'can no longer afford to subsidise this loss', according to the letter sent to investors. As an example, MiNC is asking buyers to pay an additional Dhs326,000 on units originally sold to them for Dhs370,000, a mark-up of 88% on the original price.
The developer also asks that investors pay the increase up front, with the remaining instalments as per the original terms.
The charge will then go to pay for construction costs. In return for this the company is trying to mitigate buyer displeasure by guaranteeing 8% rental returns on the increased purchase price. MiNC is also playing on the fact that, at Dhs1,000 per square foot, the units are still below market rate. 'The market is short of new buyers at the moment and as they cannot sell at a higher price, they are in effect re-selling the same apartments back to the original owners at an increased price!' an investor in the project told AME Info.
'When we spoke with their London office, and contacted their Dubai office, the only options were - give us the money we have asked for or lose your apartment and 30%.
MiNC are saying that per the new law they will be able to retain 30% of the purchase price, even though we are not in default of payment.'
Responding to this comment MiNC said: 'We do not intend to confiscate all or part of clients' deposits, and have not in any way threatened our clients in this regard.'
Permanent suspension of workThe letter continues: 'The current economic climate and the impact on the property sector are unique… Events outside our control have forced us to make difficult decisions. We believe that our proposed course of action will help us meet this target [of delivery in June 2010]. Failing this, we fear that the project will be suspended, possibly permanently.' The response from investors contacted has been understandably negative so far, with many refusing the terms: 'If I wanted to buy an apartment at Dhs1000 per square foot back in November 2006, I could have put a little more in and bought in the Marina. As an investor in this company, I feel like I have been robbed of my savings and profit.
I have looked at the market and apartments in Jumeirah Village are selling for under Dhs1000 in the current market.' If the response by even a large minority of investors is negative then MiNC will not have the funds necessary to begin construction and those who have advanced the extra money will have their funds returned and the company will wait for bank funding to resume. 'We initiated a meeting with the Land Department to get them to intercede on our behalf with the banks,' said Everest, 'and they put pressure on them but we've had no joy. Our next move if the buyers don't accept the deal is to return the money, sit it out and wait for financing. But it is our intention to build every single one of the units.'
UPDATE: Subsequent to the publication of this article MiNC has issued a statement to AME Info stating: 'We have taken steps to reduce the premium requested from clients to a maximum of 30% or Dhs200,000 (whatever is the lower), as a handful of purchasers that bought at pre-launch prices (less than Dhs600 per square foot) have rightly pointed out that the premium requested of them was excessive.'
original published: AME info
http://www.ameinfo.com/176241.html
The company behind the Prodigy development in Dubai's Jumeirah Village, MiNC, has sent a letter to investors asking for extra capital to cover construction costs after cash flow shortages caused by the withdrawal of project financing by the two funding banks.
The letter from MiNC's CEO explains the company's financial situation to investors. MiNC says that despite the land purchase being finalised in October 2006, Nakheel only actually delivered the land for construction in May 2008. This has led to: '
A significant negative impact on the project; a doubling of construction-related professional fees and a large increase in government imposed costs.' In addition: 'The arrival of the global financial crisis has had a severe impact on the monies MiNC has available to build Prodigy 1.
We are no longer able to subsidise construction of the project; the project needs to be self-funded as originally intended.'
MiNC faces two further problems. New regulations introduced by the Dubai government have meant that the company's original economic blueprint of using finances from the whole project to fund construction on Prodigy 1 is no longer legal. This has then been compounded by the withdrawal of project financing by two local banks.
Difficult financial situation'We are in an extremely difficult situation,' Simon Everest, Director of Operations at MiNC told AME Info. 'Banks have pulled all the finance, so we have the choice of either sitting, doing nothing and waiting it out, like some of our competitors are doing, or we need to find another solution.' The problems have meant that though most of the units in the seven towers have been sold, and the company's escrow accounts are up to date, the project is no longer financially viable. MiNC claims that it would make a 'significant and material loss if it were to build this project' and it 'can no longer afford to subsidise this loss', according to the letter sent to investors. As an example, MiNC is asking buyers to pay an additional Dhs326,000 on units originally sold to them for Dhs370,000, a mark-up of 88% on the original price.
The developer also asks that investors pay the increase up front, with the remaining instalments as per the original terms.
The charge will then go to pay for construction costs. In return for this the company is trying to mitigate buyer displeasure by guaranteeing 8% rental returns on the increased purchase price. MiNC is also playing on the fact that, at Dhs1,000 per square foot, the units are still below market rate. 'The market is short of new buyers at the moment and as they cannot sell at a higher price, they are in effect re-selling the same apartments back to the original owners at an increased price!' an investor in the project told AME Info.
'When we spoke with their London office, and contacted their Dubai office, the only options were - give us the money we have asked for or lose your apartment and 30%.
MiNC are saying that per the new law they will be able to retain 30% of the purchase price, even though we are not in default of payment.'
Responding to this comment MiNC said: 'We do not intend to confiscate all or part of clients' deposits, and have not in any way threatened our clients in this regard.'
Permanent suspension of workThe letter continues: 'The current economic climate and the impact on the property sector are unique… Events outside our control have forced us to make difficult decisions. We believe that our proposed course of action will help us meet this target [of delivery in June 2010]. Failing this, we fear that the project will be suspended, possibly permanently.' The response from investors contacted has been understandably negative so far, with many refusing the terms: 'If I wanted to buy an apartment at Dhs1000 per square foot back in November 2006, I could have put a little more in and bought in the Marina. As an investor in this company, I feel like I have been robbed of my savings and profit.
I have looked at the market and apartments in Jumeirah Village are selling for under Dhs1000 in the current market.' If the response by even a large minority of investors is negative then MiNC will not have the funds necessary to begin construction and those who have advanced the extra money will have their funds returned and the company will wait for bank funding to resume. 'We initiated a meeting with the Land Department to get them to intercede on our behalf with the banks,' said Everest, 'and they put pressure on them but we've had no joy. Our next move if the buyers don't accept the deal is to return the money, sit it out and wait for financing. But it is our intention to build every single one of the units.'
UPDATE: Subsequent to the publication of this article MiNC has issued a statement to AME Info stating: 'We have taken steps to reduce the premium requested from clients to a maximum of 30% or Dhs200,000 (whatever is the lower), as a handful of purchasers that bought at pre-launch prices (less than Dhs600 per square foot) have rightly pointed out that the premium requested of them was excessive.'
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