Property law gives landlords power to evict tenants and raise rents

Nathalie Gillet & Charlie Hamilton
11th March 2010, THE NATIONAL

ABU DHABI // A new property law in the capital will make it easier for landords to evict low-paying tenants, in effect weakening the existing rent cap. And for the first time, judges will settle rent disputes under the umbrella of the Ministry of Justice. The new legislation will be fully implemented by November. The five per cent rent cap will remain, but landlords will now be able to evict tenants at the end of the lease period, after giving two months’ notice for residential property and three months for commercial property, and take on new tenants at a renegotiated rent. The new law removes the automatic right of tenants to renew leases for five years with a maximum five per cent rent increase each year.
Property analysts were divided yesterday on the effect on rents of the new law; some said it would benefit landlords and property investors by effectively establishing a “floor” for rents, but others said downward pressure on rents in Abu Dhabi would continue as more units came on to the market and Dubai rents remained more competitive.

Rents more than doubled in the capital between 2006 and 2008, and barely decreased during the economic downturn because of a lack of accommodation on the market. Many landlords were unable to remove tenants or, because of the mandatory five per cent cap, raise rent in line with the market.

David Nunn of the law firm Simmons and Simmons said: “The rent cap is not being touched but the automatic right of renewal of the leases is being removed. Before, you knew you could call unilaterally for an extension after the term of the lease, for up to five years, even if the landlord wanted you to leave. “Some landlords actually preferred to keep a building empty in the hope of reselling it, rather than be stuck with a tenant for years.”

The new law will also bring the existing Abu Dhabi Rental Disputes Resolution Committee and its appeal arm under the authority of the Ministry of Justice, and add a third level, the cassation committee. Karim Nassir, a partner from the law firm Habib al Mulla, said: “The chairman of the rent, appeal and cassation committees should be a judge, whereas they used to be appointed by the Executive Council. “The employees now are part of the Department of Justice. This is the place where it should be. Now the committees are chaired by a judge so we have a legal professional on the committee.”

Tenants, however, were more concerned about the effect on rents. Graham Bentley, 34, from Dunstable in the UK, who rents a villa with his family in the Officer’s City district of Abu Dhabi, said: “It sounds like a nightmare. Tenants are going to have a lot less protection.” Mr Bentley admitted the existing law was too harsh on property owners, but said the tide had now shifted too much. “If the market pushes rents up the way it has done in the past but rents are capped at five per cent, then landlords will just throw out the existing tenants at the end of their contract and get someone in for more money,” he said.

“Most people in Abu Dhabi already think they are paying over the odds for where they are living. Lots of people are already moving to Dubai because of high rents. ”Tenants who are about to reach the end of their lease will be able to stay until November this year if they have not lived there for five years, according to the law. Landlords will not be able to ask them to leave.

“Many tenancy contracts have been signed under law 20 of 2006, which would expire today,” Mr Nassir said. “Everything has been postponed to November 2010.” A landlord could still evict a tenant before then, however, provided the Rental Disputes Resolution Committee agreed on the basis that the occupancy “causes serious harm to the landlord”, the law says, and provided the tenant had already been living there for two years.

Ziad Bushnaq, from the brokerage Cornerstone said: “Abu Dhabi landlords should rather think about decreasing rents as they will face more competition very soon.” Mark Orman, a property lawyer with Trowers and Hamlins, said the change would make it easier for landlords to redevelop rundown buildings. “A lot of the properties here are quite old and in a bad state of repair,” he said. “For landlords who wish to redevelop them, it can be quite a complicated process. This change will make it much easier to improve the quality of apartments in Abu Dhabi.”


Debt-ridden developers face prison or flight

Nathalie Gillet

December 28. 2009, THE NATIONAL

Room 145 at the Sharjah House of Justice is crowded with lawyers, clerks and the friends and relatives of the those about to appear before the elderly judge. In the back row, Elena Sassen, an elegant Russian, is quietly waiting for her husband, Dirk, a 44-year-old German, who once oversaw plans for a multimillion-dollar project as a property developer in Ajman. Now he is sharing a 40-square-metre cell with 27 other inmates, sleeping on the floor with only a woollen blanket.

Like many of his cellmates, Mr Sassen is in jail because he wrote a cheque without sufficient funds to cover it. When two guards bring him into a glass partitioned platform adjoining the court with about a dozen other prisoners, his appearance has changed dramatically since he entered Sharjah’s Al Gharb jail four months earlier. He has lost about 10 kilograms and his head is shaved.

“At least he has his own clothes and not this blue prison jumpsuit like his cellmates,” says Mrs Sassen. “I bring him new clothes every week.” The guards remove Mr Sassen’s handcuffs, but after two hours time has run out for his case to be heard this day. “We did not have time to read through his file,” the judge tells Mrs Sassen in a soft voice. “Don’t worry, we will reschedule it.”

Two weeks later the same judge found Mr Sassen not guilty of one of his charges. Two remaining charges have been transferred to the Dubai courts. “I am very happy because he will now be transferred to Dubai for his two other bounced cheques,” Mrs Sassen says. “I have heard that the new regulations now in Dubai will make bounced cheques no longer criminal cases and are being transferred to a committee. Maybe he will be able to get out of jail.” But, even if he is freed, his future is not clear.

Whatever the amount, bouncing a cheque becomes a criminal offence in the Emirates if the payee files a case with the police, says David Nunn, a partner with the law firm Simmons and Simmons. Each offence carries a sentence of up to three years’ jail.
A bounced cheque is always considered to be fraud no matter the circumstances. The system dates back to the early days of trading on Dubai Creek, when sellers of spices and garments had no security for payment other than a signed cheque.

More than 500,000 cheques bounced in the first four months of this year, Central Bank data show. That represents about 5.6 per cent of almost 10 million cheques issued during the period.  Last month, Sheikh Mohammed bin Rashid, the Vice President of the UAE and Ruler of Dubai, issued a decree to form a new judicial committee that will examine cases of bounced cheques relating to property purchases and leases in Dubai. Instead of being investigated by police or prosecuted, tenants and homeowners will first be referred to the committee. For prisoners such as Mr Sassen, the committee remains a hope.

Thousands of people who invested in property during the boom are at risk of losing their money because many developers have been unable to proceed with their projects. In some cases, developers made promises of huge financial returns using postdated cheques as ­guarantees. Developers also write postdated cheques for land. Investors also use postdated cheques, most commonly as a guarantee to banks and other lenders that mortgage repayments would be made. But when there are no funds to cover them, the consequences can be serious.

“We are sleeping here directly on the floor with just a wool blanket,” Mr Sassen tells The National in a telephone interview from prison. He can make one telephone call a day. “There are no chairs to sit on and we have to eat with our fingers. We can go out in the prison yard only once a week for 10 to 40 minutes.” Mr Sassen says he is not the type to run away: “I wanted to face it because I am not a criminal. But they just saw the bounced cheque and that was it.”
There are plenty of other examples. The wife of an Indian developer based in Dubai says: “My husband is sitting in Al Aweer jail and is having hearings for different cheque cases almost every day.” Peter Margetts, a British property developer with a project in the Jumeirah Village development Dubai, was arrested in January and sentenced to 20 years’ jail over several bounced cheques.  In Ras al Khaimah, Frank Khoie, the chief executive of Khoie Properties, the developer behind the La Hoya Bay project, was sentenced to three years in jail for bouncing a Dh57 million (US$15.5m) cheque that was issued to a unit of the RAK Government.

The collapse of property prices has had a severe impact on Ajman, where many developments were launched just before the market started to tumble. As a consequence, many developers have been arrested over bad cheques. “Everybody is now playing against each other. They all used to be such good friends,” says Jayaid Malik, an architect based in Ajman. “Many of my 60 to 70 clients are now either in jail or have just ran away. They owe me about Dh60m in total. But thank God I have no bounced cheque myself and I am not in jail.

“Once I visited one of my clients in a Dubai jail,” he says. “There were all kinds of beautiful sports cars parked outside. I was thinking these people made so much money and now they are sitting together with criminals. It is a very bad situation.”
Others have fled the country to avoid answering charges over cheques they had written.

Sam Rasool, the founder of PIR Developers, another Ajman-based broker, left the country after launching five towers and bouncing several cheques. He says he has opened a new business in Islamabad where he now lives and he hopes to raise enough money to repay his debts. “My master developer asked me to come back to try and help them solve the problem,” he says. “But unless the criminal offences are turned to civil litigation, I just cannot.”

Such cases prompted the decree creating the special committee on the issue. Ahmed Ibrahim Saif, the chief justice of the Dubai Criminal Courts, says the committee to be created will look into cheque cases related to property transactions. The decree restricts the cases to property buyers and tenants.

Some cases have already been transferred to the entity even before it has been formed. Shariq Imran Khan, the Pakistani developer behind what was intended to be the tallest tower in Ajman, is in the Dubai Central Jail awaiting a hearing for charges relating to bounced cheques and has had one of his cases transferred to this new committee, says Yasir al Naqbi, his lawyer from Excel Advocates and Legal Consultants.

The surge in official complaints against developers and property brokers has meant that some police stations are already refusing to take criminal claims for property issues, local lawyers say. “Some prosecutors are also refusing the claims,” says Maroun Saab, a lawyer at Habib Al Mulla in Dubai.

While the new committee may help remove the bottleneck in the court system it is unlikely to represent a quick fix for developers who have written cheques that have bounced, says Karim Nassif, a partner at Habid Al Mulla. He says the committee will be able to do only one of three things. “Either they will invalidate the cheque or they will order the purchaser to issue new cheques, for instance if there is a construction but there is a delay or a new payment schedule linked to construction; or they will simply send it back to the competing jurisdiction which is normally the criminal one.” “People are asking me when they will be able to get out of jail,” says Ingvild Moritsch, an Austrian lawyer based in Dubai. “But things do not happen like that. Nobody in fact has a clear idea yet of how the new entity will work.”

Nathalie Gillet


Tips to surviving the handover

Nathalie Gillet

  • January 04. 2010, THE NATIONAL

It should be an exciting time for homeowners who have waited years for the keys to their new villas. But the rapid decline in prices has left thousands moving into properties that are worth less than the amount they paid. Now many are feeling the pain as the final handover usually means the first mortgage repayments or the final payment to the developer.

At the same time, developers are rushing through completions, often before projects are fully ready to occupy, to book desperately needed revenues. “Some developers obviously do try to speed up the handover because they want their money in,” says Charles Neil, the chief executive of the brokerage Landmark Properties. “They say the property is ready but there are still a lot of issues, including in the finishing, for instance.”

Tamweel, the country’s second-largest home finance company, refused in November to accept the handover of the first completed properties from The Villa development built by Al Mazaya Holding, located within the Dubailand project. Tamweel is the financier and an owner of the estate, which comprises about 200 homes. Khaldoun Abdul Kader, the executive vice president of Al Mazaya, said late last year that the buildings were completed and infrastructure would be finished by the start of this year.

“In reality, people can’t move in for all sorts of reasons,” says Matthew Hammond, the head of agency at Jones Lang LaSalle. “No connection to power, though, is the biggest cause for developers not to be able to hand over.” Owners have clashed with developers over handover issues at Business Bay, which was originally planned to include 200 towers. Many homeowners in the project’s 12 Executive Towers paid their final instalments in August before being told by Dubai Properties, the master developer, that they would not be able to move in until late last year.

“People have been able to move into some residential units in Business Bay but I am only aware of one of the Executive Towers and the electricity is on the generators,” said Porush Jhunjhunwala, the manager of commercial leasing at the brokerage company Better Homes. “As for the office space, a few landlords are still doing the fitout. No business has moved in. There are still challenges in terms of infrastructure, electricity.”

Disputes over “snagging”, or fixing problems relating to the finishing of new homes, are also becoming more prevalent, brokers say. Investors in Al Reef Villas, a development in Abu Dhabi, have been asked for snagging lists even before their homes have been connected to power and water supplies. “We started the snags in September for the first phase of the project …” said Faiza al Zarouni, the chief operating officer of the developer Manazel, late last year. “Yes, power and water connection is under implementation, but obviously we will not hand over to the owners without the utilities.”

Some residents in the handed over villas of Al Reef, however, are still receiving their power from generators, although they were promised a connection to the federal grid soon. “The day I came for the first time, I did not know that it was the official snagging but I pointed a lot of defects,” says Khawar Sheikh, 35, an Indian banker who moved in last month. “They treated that particular day as the official snagging and I paid the balance.” Mr Sheikh says he pointed out several flaws, such as uneven walls, damaged kitchen fittings and broken tiles. “On December 15 I got the key and I said I would be moving in with my family by the 25th,” he says. “But now, even though I have moved in, nothing has been fixed. And I am still getting electricity through generators.”

Brokers say owners should be especially vigilant of snagging issues and should not accept properties that have not been properly finished. “It is not usual to do the snags without having power and water,” says Mr Neil. “You’ve got to check all the equipment, whether the AC is working or not, for instance. You need to see that the water is running – all this before the handover. “You should not accept the unit unless the water and electricity have been connected up.”

Developers are also likely to encounter more problems on buildings where 70 per cent or more of the purchase price is required on completion. “Many buyers have not secured a mortgage for their last payment,” says Mr Neil. “That is one of the big issues at the moment. The majority of the payment plans for off-plan properties here include a big payment in the end, after completion, often about 70 per cent. “The reason the developers did this was to sell, as buyers wanted a small payment upfront to flip the units and make a premium.”

Some buildings in the Jumeirah Lake Towers development reaching completion are understood to be under this kind of payment plan. Some towers in Abu Dhabi were sold in the same way. “Many investors who bought those properties at Dh2,500 (US$680) per square metre before the downturn thought it was not necessary to get a mortgage,” says Susan Cronin, a consultant with Al Jar Properties. “They had a year and a half to resell the property before delivery.”

Ms Cronin says securing a mortgage at this price is now close to impossible. “I bought two apartments with a group of seven friends,” says Francoise Harris, an investor in the Marina Blue building on Abu Dhabi’s Reem Island. “The last instalment of investors was due on completion, which according to the company is December 31. But the building was obviously not going to be ready by that time. We only want to pay on real handover.”

For their part, developers say many investors are seeking excuses to delay or avoid making their final payment because they do not have the funds or their homes are now worth substantially less than the price they paid. “People are much more critical,” says Markus Giebel, the chief executive of Deyaar Properties, Dubai’s third-largest developer. “Sometimes they really look and try to find something wrong, which afterwards can be used against us in order to stall the last payment.” Deyaar’s Citadel tower, an office high-rise building in Business Bay, which had a last instalment of 50 per cent due on handover, has been the scene of problems with some owners on delivery. “We have no issues with about 50 per cent of the customers,” says Mr Giebel. “But with the other 50 per cent, we have to negotiate.”

Nathalie Gillet


Burj already in the black

  • January 03. 2010 THE NATIONAL

The Burj Khalifa is a bundle of superlatives before it even opens. Its most important distinction for Emaar Properties, the company that built it, is that it is already in the money. After selling 90 per cent of the units in the record-setting edifice, Emaar has pocketed a profit of at least 10 per cent on the US$1.5 billion (Dh5.51bn) cost of construction, said Mohamed Alabbar, Emaar’s chairman. “Tall buildings don’t make money. They normally don’t,” Mr Alabbar said. “But to still sell it and make a return of more than 10 per cent? That’s really fabulous.”

It is especially fabulous for a company that is still recovering from a property crisis that sent its revenues down by 60 per cent and pushed its share price down by almost 90 per cent. With the opening, Emaar seems to be staging a revival. While it lost Dh430 million in the first nine months of the year, it earned Dh636m in the third quarter. Investors who stuck with its stock last year took home a 71 per cent return and analysts are now singing the company’s praises. “We believe Emaar’s strategy to invest in more recurring income-generating assets and to diversify internationally is paying off,” said Athmane Benzerroug, an analyst at Deutsche Bank. “Emaar is less and less a Dubai developer.”

It may seem strange that Emaar’s salvation may lie in escaping the market it created. Mr Alabbar set up the company in 1997 to transform Dubai into a regional hub to offset dwindling oil revenues. Emaar’s early model was fairly simple, analysts say. The Government gave it land in return for equity and Emaar turned it into dwellings. Its first major project was Emirates Hills, a planned community of secluded villas nestled around a golf course where foreigners could buy property on a 99-year lease, a first for Dubai. The development became a magnet for investors from Pakistan and India. One of its best-known residents was the late Pakistani prime minister Benazir Bhutto. The next year, Emaar turned to the Vancouver waterfront as inspiration for its Dubai Marina project. Arabian Ranches soon followed and, in 2003, Emaar announced plans to build Burj Dubai.

Still, the Burj is only the centrepiece of a larger business district. It is in the surrounding Downtown Burj Dubai that Emaar figures it will recoup its Burj investment. “We lose 2 per cent on the building. Everything else is gold,” Mr Alabbar said.The problem was that Emaar was not the only one building. The company was lucky in its timing, as it finished and sold most of its projects before the global economic crisis began. Fortunately, it had not borrowed as heavily as its rivals, a fact Mr Alabbar lays to having gone public. “The disciplines of being a public company I think have saved us,” he said. That and senior executives who, he said, “hate borrowing”.

Analysts were therefore relieved when Emaar last month called off plans to merge with the property division of the heavily indebted Dubai Holding, which manages the personal wealth of Sheikh Mohammed bin Rashid, the Vice President of the UAE and Ruler of Dubai. While Mr Alabbar said the deal still made sense, he added that Emaar called it off to soothe nervous shareholders. “They don’t want any burden,” he said. “Especially after all that has happened.”

Emaar’s final saving grace, analysts say, has been its investments abroad. Since it first ventured into India in 2001, the company has in invested in projects in Egypt, Morocco, Saudi Arabia, Syria and Turkey. Its US foray went sour last year when John Laing Homes went bankrupt. Emaar now counts on foreign investments for almost half its revenues. Emaar is already helping to build a tower in Jeddah that is expected to surpass Burj Dubai in height. “We know that there is work to be done,” Mr Alabbar said. “Maybe three months from today, maybe six months from today, but we have no doubt that this region is moving on.”

Nathalie Gillet


Ajman developer flees Dh8m debt

Nathalie Gillet

  • December 20. 2009 THE NATIONAL

Credit: MMuzammils

Sam Rasool, the chief executive of Project Integrated Realty Developers, is in Pakistan where he has citizenship, after being unable to build the five towers in Park View, one of 15 major developments originally planned along Emirates Road in Ajman. The project was launched in June last year. Mr Rasool said he stayed in Pakistan in April instead of returning to the UAE because he was unable to repay his business partner, to whom he had given a guarantee cheque. “I still have property plots that used to be worth about Dh75m in Ajman, but I am defaulted by about Dh8m because people are not paying,” Mr Rasool said by telephone from Islamabad. “It is a general crash in the market and you have to go to jail for that? So I packed up and I left.” Yafea al Faraj, the chief executive of ABH, Park View’s master developer, said his company also received cheques from Mr Rasool that bounced.

Writing a bad cheque is a criminal offence under UAE law, which has led to property developers who are unable to pay their debts leaving the country. “The company and the person who wrote a cheque that bounces is criminally liable,” said David Nunn, a partner of the law firm Simmons and Simmons. “But you have to be here in order to be liable effectively.” Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai, issued a decree last month to form a special committee that will exclusively examine the issue of bounced cheques relating to property issues.

Mr Rasool claimed to have been one of the most prolific sellers of property in the emirate, where scores of planned towers have been either delayed or cancelled during the past year. “I was the top salesman in Ajman high-rise construction, he said. “I was selling only bulk: 30 floors, 50 floors. My record in Ajman was 1,745 flats in only one day – four towers – which I sold in my office between 9am to 11pm.”

Ajman started to develop large-scale freehold property developments relatively late and as a result was hard hit by the slowdown. More than 900 towers were launched in the past two years, but the emirate’s property regulator has so far registered only 140 of them.
The Park View development was originally designed to comprise 44 high-rise plots with the potential to add a further 66 towers on the site. “Before I came, they had sold 18 towers in five months. I sold the rest, 26 towers, in about 17 days,” said Mr Rasool.
Mr Rasool is now selling franchises for a chain of gyms.

Nathalie Gillet


Emaar may cancel Burj Dubai towers

Nathalie Gillet

  • October 18. 2009, THE NATIONAL

Emaar could shelve plans to build 13 high-rise buildings earmarked for the site of the world’s tallest tower in Dubai after investors transferred their down payments to other projects. The developer of the US$20 billion (Dh73.45bn) Downtown Burj Dubai project has allowed buyers since the start of the year to transfer their down payments on the buildings to other projects on the secondary market after sales dried up.

However, brokers report that buying and selling of credit on the towers has now come to a virtual standstill. Emaar did not say when a decision would be made. “The Emaar consolidation now is almost over,” said Hakan Goksel Samur, the chief executive of Dubai Emlak Consultancy, a brokerage that has facilitated many deals. “All the big amounts are gone now [on these 13 towers].”

The property downturn has forced Emaar and other developers to put some projects on hold and allow investors who have already paid deposits to transfer them to developments that are set to go ahead as planned. A thriving trade in property credits has become an unwanted legacy of the off-plan property boom which left thousands of home buyers holding purchase agreements on villas and apartments that may never be built. “After the financial crisis started, nobody wanted to pay their instalments any more – absolutely nobody,” said Tommy Mokhtari, a sales consultant at the brokerage Smith and Ken. “Credit notes were the only option.”

The Burj Dubai is expected to open its doors to the public for the first time on December 2. The tower is the centrepiece of a 202-hectare development that has become one of the world’s largest construction sites.

“Projects announced by Emaar in Downtown Burj Dubai are in various stages of development,” the company said. “Emaar has commenced [the] hand over of homes in Burj Views, with more projects to come online in the coming months. End-users have the option of transferring their purchases from projects that will be completed at a later stage to those in the advanced stages of development.”

Brokers have said investors have been able to sell their credits from at least 13 planned towers within Downtown Burj Dubai. They are included within the M-Burj, The Mansions, Burj Place, Grand Boulevard, 18 Boulevard, Burj Park and Claren Phase 2 projects. About 90 per cent of investors have either sold or transferred their credit from these towers to other Emaar developments, according to Mr Mokhtari. Buyers may not be able to recoup their initial cash outlays and may end up paying more for future property rights.

“I had invested in two units within Burj Place and also in 29 Boulevard,” said Wael Abdul, an investor who was allowed to sell his credits six months ago through Dubai Emlak. “I contacted a broker after seeing an advertisement on the web. We signed a contract and I got 65 per cent of my Dh600,000 down payment back from another investor for my Burj Place investment.” However, Mr Abdul has been unable to sell his second investment because he took out a mortgage. “I know that they are going to cancel 29 Boulevard because they are already giving the option to people to transfer credits from there to other properties,” he said. “But I cannot sell my credit because of my mortgage. “The bank has already paid Emaar a large sum and they are threatening to take me to court. Emaar said they can shift me to another project but the property that they offered me is very expensive and I have to pay more.”

Emaar has put the 29 Boulevard tower on hold, according to a senior official who works at Besix, one of the developer’s main contractors. “We already built a few floors but they asked us to revise the construction and I would say that it is almost stopped now,” said the official, who requested anonymity. “There is no completion deadline any more. Our partners from Samsung also have towers that have been put on hold.”

Nathalie Gillet


Emaar’s end to merger plans a ‘sign of the times’

Nathalie Gillet

  • December 10. 2009, THE NATIONAL

Analysts and shareholders welcomes Emaar Properties’ cancellation of its plan to merge with three property units of Dubai Holding and called it a sign of the times in the regional real-estate market. “If it went through, it would have been the biggest developer in the region. But right now we have moved away from being the bigger, the best and all these labels,” said Ayman al Saheb, the director of operations of Darahem Financial Brokerage. “This decision was expected because right now there are liquidity issues. So coming up with a company that is already indebted is not a good equation at the moment.”

In announcing that its board had decided to scuttle the merger, Emaar said studies “have confirmed that the merger plan that was proposed doesn’t make economic for such a move at the time being”. Emaar, the largest developer in the UAE, had announced in June that it planned to merge with three Dubai Holding units, Dubai Properties, Sama Dubai and the leisure developer Tatweer. After announcing the cancellations, Emaar shares yesterday jumped 15 per cent to Dh2.94 (80 US cents), the maximum allowed by the Dubai exchange and their largest gain since November last year.

Mr al Saheb was concerned about the lack of information regarding Dubai Holding assets. “Dubai Holding is not a listed company and we have no financial data.” Emaar is about 30 per cent government owned, while Dubai Holding is a diversified business group owned by Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai. “Also, what they have in terms of assets is mainly land,” Mr al Saheb said. “One would question the fair value of land at present.” Nakheel, the company behind Dubai’s man-made palm islands, had to recently writedown the value of land of some properties under construction by Dh12.2 billion.

The cancellation “is positive news for shareholders”, said Sajeer Babu, an analyst at the National Bank of Abu Dhabi. “We as a shareholder were rather against this merger. “Emaar is in a relatively better position compared to other Dubai companies if you look their debt profile, their expansion plans, their asset base.” Mr Babu said Emaar, on a stand-alone basis, is in a good position. “It is also the only company that has exposure outside Dubai,” he said. “They are in India, Saudi Arabia, Turkey, Egypt. And all these markets are growing at a faster pace than the rest of the world. They are highly diversified.”

Martin Kohlhase, an analyst at Moody’s Investors Service, said, “I think it is probably better for the equity investors of Emaar given that they would have become a minority under the proposed structure.” Charles Neil, the chief executive of the property consultant Landmark Properties, said he does not believe the news “will have any impact on property prices”. Iseeb Rehman of the property brokerage Sherwoods International said he does not think the cancellation will have much impact on Dubai Holding projects.

“It will keep things just more transparent, though,” he said. “Dubai Holdings is still a private entity. They will get restructured. It is probably better because it will keep them separate and more transparent.” Emaar is one of six Dubai companies cut by Moody’s earlier this week, along with Jebel Ali Free Zone and Dubai Holding Commercial Operations Group. Emaar’s rating was reduced two levels to “B1”, four notches below investment grade.

Nathalie Gillet


Brokers predict glut of Dubai office space

Nathalie Gillet

  • October 12. 2009 THE NATIONAL

Landlords in Dubai may miss out on an estimated Dh7 billion (US$1.9bn) in rental revenue within two years because half of all office buildings are expected to be empty. Analysts predict that supply in the commercial sector will almost double by 2011, as companies are trimming costs and cutting jobs, leading to further falls in commercial rents.

“Office speculators will be hit and lose money. This is good for occupiers,” said Matthew Hammond, the head of agency at Jones Lang LaSalle MENA (JLL).
Landmark Advisory, the consulting branch of the property broker Landmark Properties, estimates that about 2.97 million square metres of new space will hit the market by 2011, versus 3.25 million sq metres today.

Mr Hammond said the figure was in line with JLL estimates. “While the new stock is likely to double the size of the office market, it is substantially smaller than what was planned initially.”

Office space in the emirate is now selling for 10 per cent less than three months ago, representing a decline of 48 per cent from the peak of the market last year. Prices today are at a level last seen in mid-2006.

Office construction accelerated towards the end of Dubai’s six-year building boom as developers, fearful of an approaching oversupply of residential property, switched to offices from housing. But the wave of newly completed space has arrived just as many companies are downsizing. At the same time, some companies are subletting surplus space, which is putting further downwards pressure on rents.

"There was an enormous spike in the market that was unsustainable. The market now is competitive with other Middle East and African office centres,” Mr Hammond said.

Despite the expected rise in empty office space, prime locations across the emirate will continue to enjoy almost full occupancy, according to broker CBRE, which projects the Dubai office rental market’s value to rise, despite the increasing vacancy rates, to Dh7.2bn from its current value of Dh5.4bn.

“Although there may be a level of 50 per cent vacancy, there could also be almost full occupancy for good quality offices,” said Nicholas Maclean, the managing director of CBRE. “There is quite a lot of stock coming into the market that will prove difficult to let as a result of being tainted somewhere: strata title, inadequate car parking or utilities, or lifts within the buildings.”

“Some offices which are poorly located or qualitatively less appealing are going to have a massive swing in value,” added Mr Maclean. “The demand is coming closer and closer into the centre. The prime location is World Trade Centre to junction two.”

Developments that will see large additions of new space include Silicon Oasis, Dubai International Financial Centre (DIFC), where 557,418 sq metres is under construction, and Jumeirah Lake Towers, where another 557,418 sq metres will be completed next year, according to Mr Hammond. The vast Business Bay development will also contribute to the glut of new space.

Rents for Business Bay towers, which are nearing completion, are quoted in the range of Dh1,615 to Dh1,884 per sq metre a year. This is a substantial discount to the DIFC, where current leases are priced at between Dh4,036 and Dh4,300 per sq metre.

While the projected oversupply will hurt developer’s profits, it may also provide a boost to inward investment as foreign companies seek cheaper locations to service the region. Brokers therefore anticipate more demand as prices fall.

“I think that ultimately it will create a greater opportunity for businesses to come to the region as depressed prices make it more affordable to set up their business there,” said David Macadam, the director of commercial properties at Better Homes, a brokerage.

Landmark also expects office demand to gradually increase next year after a year of cost-cutting and consolidation.

“We expect to see a marginal increase in office requirements for existing companies, as well as the entrance of a small number of regional or international companies,” the Landmark report said.

As competition for tenants increases, landlords are increasingly offering incentives such as fittings, grace periods and easier payment options.

Brokers also predict an oversupply of office space in Abu Dhabi, but at a much lower level. Abu Dhabi will see the addition of about 2.04 million sq metres by 2012.

“There will be a surplus in Abu Dhabi as well. But the market has reacted quickly to the global economy,” said Mr Hammond. “There will be a much more measured delivery of the development pipeline into the market.”



Ajman approved 172 tower developments... out of 900 planned

Nathalie Gillet

  • August 23. 2009 9:09PM UAE / August 23. 2009 5:09PM GMT

Ajman has approved the construction of about 172 towers, less than a quarter of the total number originally planned in the emirate.

The Ajman Real Estate Regulatory Agency (ARRA) has published a list of the 172 approved towers on its website, compared with the 900 buildings that were planned.
“Some of the registration applications have been rejected but many other projects are still under process and may join the list, or not,” said Omar al Barguthi, the director general of ARRA.

“Some are registered but still have no escrow account because of banking requirements.”

Property developers across the Emirates have been forced to cancel or delay scores of residential developments after prices began to fall sharply last autumn.
Ajman started developing many of its projects later than other emirates, which has thrown the construction of hundreds of planned projects into doubt.

It is the first time the ARRA has published a list of approved projects since implementing new regulations for developers, which require registration and an escrow account for investor funds to be used exclusively for the construction costs.
In total, 122 projects of 24 developers are on the list, representing about 172 towers, 1,500 villas and 109 land plots.

Most of the older projects within the city of Ajman have been approved, but only a few of the buildings nominated for land alongside Emirates Road have been accepted.
They include projects known as Boulevard, Emirate Lakes Towers, some buildings within Emirate City, Escape, Ajman Uptown and Park View.

Developers who fail to meet the regulator’s new rules face having their projects scrapped.
“We will declare those projects as cancelled from ARRA’s standards and legal perspective,” Mr al Barguthi said. “And we will let the people responsible for it deal with their investors.”

He also encouraged buyers to form owners’ associations and take legal action to recover their investments.
“One of the ideas that could be laid down is for all the investors to form an association committee of owners to look after their needs,” he said. “They would have one voice to speak, as each case is different. If they want to go forward with the development and build, we can give them the escrow. Maybe the master developer will offer to transfer them from one tower to another. There are many possibilities.”

Mr al Barguthi said a planned conflict resolution committee was also close to formation. “Any person will be able to file a case there. It will be faster and cheaper than going to the court. Whatever this new authority decides will be implemented and come into effect.”

Developers who have registered and opened an escrow account are now entitled to request further payments from property buyers.
“However we also look at the construction percentage versus how much has been collected,” Mr al Barguthi said.

According to the executive, no developer will be able to cancel an investor’s contract without approval of the ARRA. Developers will also be required to start construction within a given time, once they have announced the launch of a project.

The projects that did not make it onto the approved list include Humaid City, Al Helio Downtown and the huge waterfront development known as Al Zorah.
Marmooka City, which has been scaled back to 20 towers from 206, is still “under process” of registration, as are Aqua City and Awali City, said another ARRA official.


Nakheel presses buyers for cash

Nathalie Gillet

  • Last Updated: August 20. 2009 9:58PM UAE / August 20. 2009 5:58PM GMT

Nakheel is asking investors using credit transfers for property purchases to top up their payments with cash, as it seeks to raise funds ahead of a mid-December due date for a Dh3.5 billion (US$953 million) bond.

According to brokers, the Dubai Government-controlled developer allows investors in delayed projects to sell their downpayments to other investors who have already invested in other Nakheel developments.

But now the company is no longer allowing customers to use credit transfers alone to fund instalments, and is demanding that part of the payments are made in cash, brokers say.

“For example, when a buyer has Dh1m to pay, Nakheel would say you need to pay 30 per cent in cash, which makes Dh300,000,” said one broker, Farid Ahmad Hussein.

“They will accept a credit transfer of Dh700,000 from somebody else. The investor can get this Dh700,000 maybe at 40 per cent discount now in the market from another investor. In total he has saved Dh280,000.”

Nakheel needs to pay back a Dh3.5bn bond on December 14, in what is being seen by international lenders and rating agencies as a litmus test of the Dubai Government’s willingness to support its affiliated companies facing financial difficulties.

So called “credit consolidations” were triggered by the collapse in property prices last autumn, which saw scores of developments either cancelled or delayed and effectively ended the “off-plan” property market.

Investors in stalled projects have been able to sell their downpayments, usually at a loss, to other customers of the same developer, and then those downpayments can be used on continuing projects. These credits can only be transferred between buyers that have already made downpayments and are not available on the secondary market.

Developers facilitate the transfer of credit between investors in different projects to generate funds needed to complete some developments, while also making it easier for them to abandon others. External brokers help to match buyers.

Unlike other developers, Nakheel requires the transfer of ownership between investors to be completed before credit is moved between properties.

“Investors in projects that have been deferred have the option of consolidation if they own other properties within the Nakheel portfolio. The advantage to the investor is that Nakheel is able to hand over property to the owner sooner than it might on a deferred project and help investors reduce their financial exposure,” Nakheel said in a statement. The developer declined to comment on whether cash payments were also required to complete property consolidations.

Nakheel has shortened the time it takes to complete such transactions to about a month, from three or four months previously, according to brokers.

Nakheel, the developer of The Palm Dubai, has spent billions of dirhams on projects that are still under construction, while adding further offshore island developments including The World and The Universe.

But development on such a massive scale has come at a high price for the company, which is now struggling to repay debts accumulated during the six-year building boom.

The trade in credit notes on stalled projects is helping revive activity in the property sector, according to Rajesh Sony, a director of Bluechip Real Estate. The firm, he said, generates 90 per cent of its turnover from matching buyers and sellers of credits.

“This is a win-win situation between the developer and investors. If all the investors of one project transfer the money elsewhere, the developer may call off the project without having to refund the money to investors. At the same time, investors can get out of the market without losing all the money, and other investors in ongoing projects can pay their instalments at a cheaper rate,” he said.

The exchange of Nakheel credit, or consolidations, began in February on projects that include the Dh4.4bn Dubai Promenade, and the Dh2.9bn Trump Tower, the centrepiece of Dubai’s original Palm Island development, according to Mohammad Mujtaba Vakil, a broker from Linkage Real Estate.

He said that while cash components were not requested on earlier transfers, Nakheel now “would not accept anything less than 30 per cent”.



Trade in off-plan properties hots up

Nathalie Gillet

  • The National: July 13. 2009

Construction vehicles at Marmooka City: demand for off-plan properties is not yet dead. Jeffrey E Biteng / The National

News of the death of the off-plan market has been greatly exaggerated. One particular segment has become vibrant recently, with a type of transaction that involves trading in what amounts to distressed debt.

While there are no buyers for new off-plan properties, there is demand for trading in downpayments that have already been made.

For example, anyone who paid a deposit of 5 per cent or 10 per cent for a property that was launched last year but which has now been put on hold – or the future of which is unclear – may be allowed by the master developer to sell this credit to someone else who already has an off-plan property elsewhere with the same developer. They sell at a discount, but it gives them a chance to get some of their money back, and it takes the liability for future payments off their backs.

Developers also avoid having to hand back cash to potential defaulters. Although some are reluctant to speak about it, big master developers in different emirates are allowing this trade in downpayments, including Emaar Properties, Nakheel, Rakeen in Ras al Khaimah and the Real Estate Investment Establishment (REIE), based in Ajman. The rules differ slightly from one developer to another but the principle is the same.

“Some of them are called credit notes, some of them consolidation certificates,” says Michael Michael, the sales manager of Landmark Properties, which closed a deal with Nakheel recently. “Initially, when the concept was introduced we saw a lot of credit notes trading in the market. We have seen this number reduce over the past weeks. Nevertheless, they are still being offered.”

Rajesh Sony, from the broker Bluechip Real Estate in Dubai, says that 90 per cent of his business is now in consolidation. “For instance, if I have a property in Mushrif Heights from Emaar and I have paid Dh500,000 (US$136,128), the developer allows this Dh500,000 to be transferred to another person’s account, who owns another property with Emaar, and who owes further payments,”

Mr Sony says. The buyer usually gets the credit at a discount, generally of about 30 per cent to 50 per cent.
The deals happen at brokers’ offices. “Investor A comes to the broker and says, ‘I have got that much credit with Emaar and I want to give it to someone who needs it’,” Mr Sony explains. “Investor B will also come to the broker and say, ‘I have to make so much payments to Emaar, but I can’t afford the full instalment. I am happy to take some credits from someone at a discount rate. Find me somebody who has a credit’.” Brokers thus become facilitators who put both investors in contact with each other. Both then seek permission to go ahead from the developer.

“In the end, although investor A does not get the full amount from investor B, he is happy because otherwise his Dh500,000 are stuck. Whereas B, who has to make large payments, can do it at a bargain price. It is a mutual benefit,” Mr Sony says. Investor A managed to get out of the market and has no more liabilities towards the developer, while investor B becomes an owner of a property at a lower overall cost.
“Right now it is a big market,” says Mr Sony, who deals only with Emaar and Nakheel. “We have been doing this for the past three months and 90 per cent of our business as a real estate company is now done through consolidation.”

Conditions are slightly different from one master developer to another. In Ajman, the REIE, which owns Marmooka City, a 206-building development, has allowed developers who bought land to consolidate with other developers but applied a 30 per cent penalty – on the payments already made – for each contract cancellation. In Ras al Khaimah, Rakeen, the master developer of two large mixed-use developments, allowed investors to transfer payments from Dana Island to Marjan Island, which is more advanced in construction. Rakeen does not apply a penalty but asks investors to refund the commission they had paid to the broker and sets deadlines for construction.
According to Mr Sony, Emaar does not apply a penalty, but does not allow the final payment of a property to be made through consolidation and only allows investors who buy credits to do it once.

Nakheel, according to brokers and investors who concluded consolidations, has a slightly different method. “Investor A will have to transfer his property to investor B first. Investor B then has two properties: one which is on hold by the developer and one which is continuing. He will then make a request to Nakheel to transfer the credit to the second one,” one said.

“Nakheel is charging Dh5,000 just to consider the application,” says Arshad Hussain, who has invested in a flat in Al Furjan phase 2.

However, for many investors, it offers a neat conclusion to what might otherwise be a sorry tale.

By allowing credit consolidation, if all the investors in a stalled project transfer the money to other projects, the developer may call off the project without having to refund money to investors, Mr Sony says.“This is a win-win situation between the developer, investor A and investor B. And the broker, who gets a commission. And it keeps the cash outflow to the minimum.”

Not all brokers are interested in this market because of its challenges. Consolidation generally takes four to 12 weeks.

In the meantime, the money remains in the form of a cheque to the broker or an escrow until the developer agrees. If he does not, the money is given back to the original investor and the transaction cancelled.



Property investors rally to the cause

Nathalie Gillet

  • The National November 24. 2008 9:59PM UAE / November 24. 2008 5:59PM GMT

An amendment to a property law in Dubai has brought together a group of worried 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.”


Developers promise property buybacks

Nathalie Gillet

  • Last Updated: November 14. 2008 8:04PM UAE / November 14. 2008 4:04PM GMT

Companies hope the buyback plans will help invigorate flagging markets. Paulo Vecina / The National

Some developers caught in a stagnant market have been attempting to lure customers with promises they will buy back property at a higher price a few months after a sale, guaranteeing the deal with postdated cheques.

While that may seem an attractive offer, industry insiders warn the practice is potentially highly risky for all involved.

Despite signs these sorts of deals are growing increasingly common, few developers were prepared to admit they have offered them, partly because in some places the deals could be legally questionable.

Although the arrangement terms vary, potential buyers are generally offered to pay all or part of the price of a property. In return, the developer pledges to buy it back after a set term at a higher price.

“Basically we are trying to give confidence to the buyer because prices are going up,” Mohammed Noorul Haq, chairman of Dubai-based developer Sanali Group, said. “We just started using this. We are giving a choice. You can sell the property at a higher price or we can resell it for you at a higher price in six months’ time. If we can’t do that, then we will buy it from you at a fixed price.”

The deals carry several risks for both sides. In at least one jurisdiction, Dubai, they may be legally questionable, since property brokers are not allowed to offer structured investments, only property.

“This sounds like an investment,” said Marwan bin Ghalita, the chief executive of Dubai’s Real Estate Regulatory Agency. “Developers are not supposed to do investment business. Their licence is to develop land and sell it, period. End-users should be cautious.”

Still, as completing sales gets more difficult amid a stressed market, some companies say the practice is a legitimate invigorating tool.

An agent at JCA Real Estate, a Dubai-based broker which also operates in Ajman, said: “We are asking for the total amount in cash and give the client a postdated cheque on behalf of our developer, with 10 per cent profit after one year. But the client has to pay everything immediately.”

One investor said he had received a different offer at an Ajman property exhibition last week.

“I was offered to pay 10 per cent in exchange for a contract, saying that after six months I would get 40 per cent returns and a postdated cheque,” Steven Zhang, a Chinese businessman, said.

Vincent Easton, head of sales at Sherwoods Independent Property Consultants, said: “This is not a new concept, a guaranteed buyback with an option to keep the property. It’s effectively an interest-free loan and a number of developers are doing this. But if the prices drop, why would a developer buy back? I don’t want to touch these things at all. I don’t know many financial models at the moment where you get a guaranteed return of your investment of 20 per cent over six months.”

Experts say the buyback deals could simply be postponing existing problems of developers, or amount to an act of desperation to raise cash needed to continue operating in the short term.

“It is known in the market,” said Benoît Demeulemeester, managing partner at Dubai Strategic Partners Middle East, which specialises in financial strategy. “But developers who are doing this when the market is going down will be put in an even more difficult position than they already were.”

He said the rate of return promised, 20 to 40 per cent, makes no sense in terms of risks and compliance.

“We could compare this with derivatives or options,” said Mr Demeulemeester. “The returns are beyond any financial model.”

In reality, developers hope nobody will use the buyback option.

“It is very risky financially. We would lose money if property prices go down but we are confident that they will stabilise in January,” Mr Haq said. “We are pretty sure that the Dubai and UAE market is going to go up. We are confident in the leadership of this country. But we have to give this confidence to the buyer.”

A broker at Bhakti Real Estate has offered such deals on a case-by-case basis.

“People have the cheque and the MOU [memorandum of understanding] in their hands and feel safe. Generally we give between 40 per cent to 60 per cent return on investment.”

Legal sources questioned how investors could have any confidence that their basic investment would be returned.

“People think they are safe and they are not,” said David Nunn, a partner at the legal firm Simmons and Simmons. “It is one thing to have a right and it is another thing entirely to be able enforce it.”

According to lawyers, issuing postdated cheques and signing MOUs is legal. Failing to honour a cheque is a criminal offence.

“The risk a sub-developer runs in allowing a cheque to go unpaid is that the company and the person who wrote the cheque will be criminally liable. But criminal liability is a bit of a blunt instrument. You have to be [physically] present in the country in order for this to be a meaningful deterrent,” Mr Nunn said. “If the sub-developer defaults, is insolvent and the managing director who wrote the cheque has left the country and doesn’t intend to come back, what is the real recourse that you have? Zero.”

Mr Easton, of Sherwoods, said a payment held in an escrow account would be protected.

“If it is in an escrow account it is protected. If it is outside, then that is scary,” he said.

Officials said the problem for developers was that putting the money into an escrow account meant it could not be accessed, which defeated the purpose of the exercise – to raise operational cash.

Also, Dubai is the only emirate with an effective escrow law.



Amlak loses 6% on freeze

Bradley Hope, Travis Pantin and Nathalie Gillet

  • Last Updated: November 20. 2008 8:42PM UAE / November 20. 2008 4:42PM GMT

With the country's largest mortgage lender freezing credit, new housing sales could suffer. Randi Sokoloff / The National

Abu Dhabi // Amlak Finance, the country’s largest home loan company, saw its stock fall by 6 per cent on Thursday in reaction to its decision to suspend temporarily new lending.

Analysts said the move, probably a result of a shortage of liquidity, would further slow property sales and hurt confidence in the market in the short term.

The Central Bank, which has duties that include the oversight of the country’s financial institutions, made no comment on Amlak’s decision. Last week, it said it was discussing the possibility of creating new “financial vehicles” to prop up property loans, but it has yet to release details of how these vehicles would work.

Amlak is engaged in merger talks with Tamweel, the second-largest home loan provider. It was unclear how this latest development would affect the talks.

Amlak’s share price fell 5.56 per cent to Dh1.02, after dipping as low as 98 fils during the day’s trading. Emaar Properties, which owns a 45 per cent stake in Amlak, also declined, losing 3.27 per cent to close at Dh2.96.

Tamweel fell 5.71 per cent to 99 fils. The three stocks together are the biggest losers on the Dubai Financial Market (DFM) this year, with all of them having lost more than 80 per cent of their share price.

Meanwhile, a glimmer of hope emerged for would-be home buyers in the form of a teaser advertisement from a new home finance provider based in Abu Dhabi.

“Soon your mortgage worries will be a thing of the past,” the advertisement read, adding that more would be revealed on Nov 26.

The new provider, with a working title of Abu Dhabi Finance, is rapidly setting up offices at the Abu Dhabi Commercial Bank building on Electra Street. Executives of the new company could not be reached yesterday, but people familiar with the plans said it would begin offering home financing for sales from major developers at the end of the month.

“It will improve liquidity and show a bit of confidence in the markets,” said Chris Dommett, the chief executive of the Dubai office of mortgage advisory firm John Charcol. “It shows people are actively trying to find solutions to the current situation.”

Mahmood al Mahmood, the chief executive of Al Qudra Holding, said on Wednesday that the Government was looking at broadening the role of Real Estate Bank in Abu Dhabi to begin lending to distressed property and home finance companies.

It was unclear to what extent the problems encountered by Amlak were shared by other lenders.

Analysts said its problems were probably a result of its inability to obtain enough outside capital to fund operations. Banks are reluctant to commit further funds to a property market that is weakening.

But most of the country’s financial institutions can rely on deposits and have direct access to government money, which home lenders do not have.

Arif Alharmi, the chief executive at Amlak, said the company was temporarily suspending new home financing while it reviewed its credit policy. It offered very little explanation for the move.

Robert McKinnon, the managing director of equity research at Al Mal Capital, said the announcement was further proof of the difficult lending environment and foreshadowed troubles in the weeks and months to come.

“In the whole banking sector now it is very difficult to get a mortgage, and prohibitively expensive,” he said, adding that mortgage interest rates were as high as 9.5 per cent. All lenders have significantly pulled back. Most have increased the minimum downpayments required and reduced the number of eligible borrowers by toughening their income criteria. Lloyds TSB announced earlier this month that it would stop lending for apartment sales.

Analysts said the move would further slow property sales and hurt confidence in the market in the short term.

“Currently, real estate is suffering. If we see less availability of mortgages, this will add to the downfall, and to the correction of the real estate market,” said Mahdi Mattar, the chief economist at Shuaa Capital. “Real estate is one of the biggest components of the economy, especially in Dubai, and we will see repercussions across the board.”

Although the Government has promised to make as much as Dh120 billion (US$32.67bn) available to banks, little of the money has made its way to mortgage providers such as Amlak and Tamweel, or property developers, bankers said.

Treasury officials at local banks said that the most recent cash injection from the Government – an instalment of Dh25bn – had been distributed this week, and that the funds should start filtering into the economy soon.

However, even with the extra cash on hand, banks have been wary of lending to the real estate sector for fear of exposing themselves further to the possibility of falling property prices.

“Banks don’t want to take further exposure at the current time, as the real estate market has been correcting significantly and extremely fast,” said Mr Mattar.

Home financing had been on the rise across the country before the credit crisis. According to estimates by Al Mal Capital, the volume of mortgages for residential properties rose by nearly 40 per cent during the first half of this year. Total lending for homes in the country is estimated at Dh50.9bn as of June 30. At the end of last year it was about Dh36.6bn.


Burj Dubai property prices fall

Nathalie Gillet

  • Last Updated: November 12. 2008 12:43AM UAE / November 11. 2008 8:43PM GMT

Property prices within the Burj Dubai tower have declined by up to 50 per cent, say brokers. Paulo Vecina / The National

Residential prices for Emaar Properties’s signature Downtown Burj Dubai development have fallen by at least 22 per cent, with reductions of up to 50 per cent within the Burj Dubai tower itself, according to property brokers.

Some high-end developments in Abu Dhabi are also recording significant price declines in the secondary market, where properties change hands after being sold by the developer.

The price corrections underscore how the credit crunch and prospects of a global recession are affecting the property market, particularly high-end developments.
According to statistics from the international estate agents Hamptons, which is owned by Emaar, prices in the Downtown Burj Dubai area rose 88 per cent in the year to September. Other brokers said some prices more than doubled.

“This is indicative of the whole marketplace,” said Vincent Easton, the head of sales at Sherwoods property agency in Dubai. “Downtown [Burj Dubai] had quite a sharp spike in pricing. Anything that has a sharp spike is open to a correction if the market slows. Really, ultimately we will see the correct level.”

Sherwoods, which closely monitors transactions at the development, said it had observed an average decline of 22 per cent, excluding the Burj Dubai tower. Prices in the tower – scheduled to become the tallest in the world – increased the most, and have subsequently fallen sharply. Prices outside the tower fell from an average of Dh3,500 (US$952) per square foot to Dh2,700, Sherwoods said. “When you exclude Burj Dubai from the area, you get a more realistic idea of the decline in the development,” said a market research officer at Sherwoods. Flats on 8 Boulevard Walk, for instance, dropped from Dh3,300 per sq ft to Dh2,500 per sq ft in three weeks – a 24 per cent decrease.

Sujeeva De Silva, another Dubai-based property consultant, said prices in the Old Town quarter of the development had fallen 30 per cent in the past month, along with nearly 20 per cent at the South Ridges and Residences areas.

Price fluctuations in the Burj Dubai tower had been far more volatile because of the high percentage of speculators owning the properties, brokers said. Some had since been sold at significant losses to generate cash, they added. The most expensive floors, such as those branded by Armani, sold at about Dh14,000 per sq ft and were holding much of their value.

“Burj Dubai area was supposed to be the hottest and highest selling area. Now things have changed. The owners over there are in distress. They are desperate to sell with zero premiums, or minus premiums,” said Juned Ali, a senior property consultant at Alamfa Real Estate. Mr Ali said that many short-term investors feared they would forfeit on looming payment deadlines.

Parthasarthi Reddy, the client relations manager at Zagy Properties, a brokerage firm based in Dubai, said the prices of units in Downtown Burj Dubai had suffered the biggest drops in the city so far. Emaar declined to make a spokesman available to comment on the Burj Dubai project.

Downtown Burj Dubai is Emaar’s flagship project, a mixed-use urban development that includes high-end residential properties, office space and retail. The centrepiece of the area that will spread across 200 hectares is the iconic Burj Dubai, due for completion next year. The project is close to the Dubai International Financial Centre and includes Dubai Mall – one of the largest shopping malls in the world – which opened earlier this month.

“Once Burj Dubai is completed, the inner circle of 25km in the emirate will be one of the dearest residential areas in the world,” Dirk Sassen, a shareholder in the German property investment fund ICT, said in June.

Abu Dhabi’s high-end developments have also been affected. As is the case in Dubai, properties in projects that drew the most attention from speculators last year have recorded the most pronounced declines. Brokers said that many of the buyers appeared to have no intention of holding on to the property long enough to make the first required payments to keep possession of it.

“Al Reem Island has seen quite a harsh reality check, because that was a real speculative market,” Mr Easton said. “You had actually 95 per cent speculators who had no intention of doing further payments. Residential properties in some cases [are now put into the market] at minus 15 per cent premium.”

According to Susan Cronin, the general manager of Aljar Properties, a broker based in Abu Dhabi, only prices involving bulk deals have decreased. “A floor of offices that was offered in Al Shams Abu Dhabi at Dh2,500 per sq ft three weeks ago is now being offered at Dh2,100,” she said.

Investors who bought properties on Reem Island at up to Dh2,700 per sq ft during Cityscape in May are expected to be the hardest hit if they intend to resell now. “Someone who is looking to exit today will have no choice than resell at around Dh1,800 per sq ft,” Mr Easton said. “The best thing people should do if they can is to hold.”

“Burj Dubai is an amazing area, but it will take a little more time [to make money]. You should have a capacity to hold on to it. This is not the seller’s market any more. It has become the buyer’s market now,” Mr Ali said.


Off-plan resale prices fall, say agents

Nathalie Gillet

  • Last Updated: October 25. 2008 10:40PM UAE / October 25. 2008 6:40PM GMT

Houses under construction at Al Reef in Abu Dhabi are now on offer at 10 per cent below their peak value, agents say. Andrew Parsons / The National

Property prices in Dubai and Abu Dhabi have fallen for the first time on the secondary market as speculators struggle to meet instalment plans, while buyers have disappeared for lack of financing.

Off-plan properties that are still under construction have been hardest hit by the downturn, which has emerged only in the past week, but sales of all types of property have slowed to a near standstill as uncertainty grows over the health of the global economy.

“It has been going on for a week now. I have seen prices going down about 10 per cent everywhere, even in Dubai Marina and Downtown Burj Dubai,” said Khaled Elqassim, the sales manager at AAA, a Dubai-based property broker.

“Pretty much all the secondary market is trading at less than it was before the financial crisis,” said Karen Lay, the marketing manager at LLJ Properties in Abu Dhabi.

The selling pressure is strongest from speculators who secured finance only for one or two instalments, sometimes through personal loans, hoping to sell at a profit. These sellers are now marking down their offers to find buyers, who in turn face difficulty securing loans. Home finance providers have tightened lending criteria and now offer only about 65 per cent of sale value, compared with 90 per cent just two months ago.

“If they can’t afford the next payment and can’t sell the property they invested in, they might find themselves in trouble,” said Walter Hart, the managing director of Humberts International, a broker who recently entered the market.

Many property professionals had expected prices to rise substantially after Cityscape Dubai, the world’s largest real estate investment and development event, at the beginning of the month, but instead many agents’ telephones have gone unusually quiet.

“Nobody is interested in off-plan any more. Our phones are quiet most of the time. We haven’t felt the Cityscape effect,” Mr Elqassim said.

Another sales agent said: “Usually we sell around 120 units a month, but we haven’t reached a dozen in October yet. I can tell you that nobody is selling here at the moment. We have been seeing an increase in the number of sellers and a sharp drop in the number of buyers.”

Some owners who have met difficulties in paying their instalments to developers have asked for a postponement or rescheduling, property executives said. “I have even seen many of them already submitting forfeitures,” said a legal adviser at AAA Lords. He added that some developers were becoming more lenient with buyers as sales had dropped to half the usual levels.

Developers offering properties for the first time directly to investors had not yet reduced their prices, because they were not under the same pressure as retail investors, brokers added.

“Some people on the resale market are reducing their margins because they want to sell. But I haven’t seen any reduced prices from developers,” said Mohammed Guidoum, the chief executive of Remax, an Abu Dhabi-based broker. “People who cannot afford to pay the second or third payment, they need to sell. But people who are comfortable with their future payments or have a mortgage, they are not concerned.”

Fran Wheatley, a broker with Landmark Properties in Dubai, said prices were falling in many different areas including Downtown Burj Dubai, plus some projects in Dubailand and Al Furjan.

Munther al Bakri, a broker at Gravity Real Estate in Abu Dhabi, said prices in two Manazel developments were falling. “People are reducing their premiums. In Building Material City in Abu Dhabi, people who were making 15 to 16 per cent premiums are now getting nine per cent.”

In its Al Reef development in Abu Dhabi, a two-bedroom villa that sold last month for Dh2 million (US$544,000) was now for sale at Dh1.75m, he said.

Most property owners are still looking at a big profit, depending on when they bought. But for those who have just bought into the market, the outlook is far from certain.

“We are seeing people selling at the original price, just to get out of the market,” an agent from Hamptons said.

Selling pressure was greatest in the off-plan market, while completed properties were somewhat protected, agents said. Demand is greater in this segment because new residents are still demanding rental accommodation or buying property to live in to escape high rents.

Rents have increased 22 per cent in Dubai, and 64 per cent in Abu Dhabi in the past 12 months.

“Dubai is an attractive place to come and live in, more than ever before. People who are coming here for new opportunities all need to live somewhere,” said Vincent Easton, the head of sales at Sherwoods.

Some brokers tried to put a positive spin on the price drops, predicting that they might recover soon.

Andrew Covill, the head of sales at Abu Dhabi-based LLJ Properties, said: “some people are not really informed of the situation and think they need to sell. Now is not a time to sell, it’s a time to invest for the future. There are fantastic deals out there. There is more choice for the buyers.”



Emaar plans to buy back shares as stock falls

Nathalie Gillet

  • Last Updated: September 13. 2008 9:52PM UAE / September 13. 2008 5:52PM GMT

Emaar Business Park office along Sheik Zayed Road in Dubai. Paulo Vecina/ The National

Emaar Properties, the largest publicly traded property developer in the Middle East, plans to start buying back its shares, which have slumped nearly 50 per cent this year.

In announcing the buy-back yesterday, the company said it believed its shares were undervalued.

It will start buying back up to 10 per cent of its shares next month. The company received regulatory approval last December from the Securities and Commodities Authority (SCA) to implement a buy-back programme. Today, 68 per cent of the company’s shares belong to the public and 31.88 per cent to the Government of Dubai.

“At Emaar, we firmly believe that there is no better investment we can make than in our own future,” said Mohammed Ali Alabbar, the chairman of Emaar Properties. “The decision taken by the board of directors to buy back Emaar shares reflects our firm belief that those shares are currently undervalued in the marketplace.

“Recent declines in regional markets are largely not in line with the fundamentals of the majority of companies listed here, including Emaar. Rather, the recent performance of the markets here reflects global trends such as [the] credit crisis and global economic slowdown that affect investors’ sentiments.”

The programme would not be implemented before Oct 1, in line with the SCA’s regulation that companies cannot execute any share buy-back 15 days before the end of the financial quarter, the company said, adding Emaar will buy back its shares from time to time on the open market at prevailing market prices, through block trades or otherwise. The property developer said it would use available cash to fund the buy-back.

“When Emaar says ‘I am planning on buying back 10 per cent’, it doesn’t mean that they are going to jump on it and do so,” said Ayman el Saheb, the director of operations at Darahem Financial Brokerage. “Emaar has submitted an application to the SCA twice in the past. The deadline came and went, and they didn’t buy a single share.” SCA approvals usually have an expiry date of one year.

“Usually, companies wouldn’t want to do buy back shares because they need liquidity for their investments to generate more income,” Mr Saheb said.
The firm’s announcement comes amid recent sharp falls in property stocks in Dubai. Emaar Properties’s shares fell 3.57 per cent to Dh7.57 on Thursday and hit a fresh 41-month low last week.

The company’s shares have slumped 49 per cent this year, while the Dubai Financial Market General Index has dropped 28 per cent. Tamweel shares plunged last week as the mortgage lender came under scrutiny after its deputy group chief executive was questioned by Dubai police.

“Given the prices at which Emaar is right now, I believe it would positively impact the stock. Historically every time Emaar announced they would buy back their shares, the market responded positively in the sense that good gains were made,” Mr Saheb said.

“The question is why are they bringing it up now? Do they want to remind investors that Emaar has the approval to buy back [and] still has three months to December to do so? Do they expect shares to go even further down until October? Do they feel threatened by people buying out controlling shares?

“Once you see such a big company lose so much value in the stocks, it is vulnerable to takeover bids, with people moving in and buying as many shares as they can under different people’s names and at some point of the time they have a controlling share.”

Dubai’s Islamic mortgage lender, Amlak Finance, said in September of last year that it had received approval to buy back five per cent of its shares. The firm did not say when it would begin buying back shares.

Emaar Properties recorded first half net profits of Dh3.31 billion (US$902million) and revenue of Dh8.20bn. Emaar is developing Burj Dubai, the world’s tallest building and free-standing structure, and the Dubai Mall, one of the world’s largest shopping malls.


Spotlight falls on North Africa

  • Last Updated: July 07. 2008 10:34PM UAE / July 7. 2008 6:34PM GMT

If the first act in the Middle East’s property market has played out in the Gulf, North Africa is where the spotlight is moving for Act Two.

But, as the plot thickens, big questions remain: far from the Gulf, the countries of the Maghreb – that swathe of Africa north of the Sahara and west of Egypt – are a diverse collection of markets, each with its own complicated population and policy dynamics.

It is far from clear how the Middle East’s new property giants – such as Emaar, Sorouh and Tameer Holdings, who have cut their teeth in friendly home markets – will fare as they launch some of their first and most ambitious overseas projects in the nations along the southern shore of the Mediterranean Sea. But they are clearly determined, and the payoffs could be enormous.

Although regularly lumped together, the countries of the Maghreb are a mixed bag, especially when it comes to property development. Morocco, an increasingly popular tourist destination for Europeans, has a reasonably well developed infrastructure.

Algeria has a population of about the same size, 34 million, but its economy is recovering from a long-running Islamist insurrection in the 1990s. Libya is just emerging from decades of isolation and getting its first taste of economic development. And Tunisia has a smaller population with a sizeable, educated middle class, 80 per cent of whom are property owners.

So developers are varying their approaches. In Morocco, property companies envision a new retirement and holiday home destination. In Libya, the aim is to bring the country’s rudimentary housing and office stock up to basic global standards. In Algeria, the attraction is a steady source of demand from the legions of youth – half the population is under the age of 20 – who will demand housing and other development as they come of age.

Despite this fragmentation, the opportunities were tremendous, said Marwan Shehadeh, the managing director of Al Futtaim Capital, which recently closed a US$500 million (Dh1.8 billion) fund aimed at investing in projects in North Africa. “The combination of young populations, rising tourism visits and proximity to the wealthy continent of Europe is hard to beat,” he said.

Mr Shehadeh added that demand from potential investors – particularly from the Gulf and Asia, but more recently also from the West – was so strong that Al-Futtaim Capital was considering a second fund-raising of an additional $200m.

But the challenges in all these places are formidable – notably a lack of essential infrastructure, a shortage of technical know-how and the existence of powerful elites playing complex games of patronage.

Despite a plethora of grand announcements, many of the projects exist solely on paper, and have for years. “There is little real investment behind the spectacular figures announced,” said a European diplomat who has been based in Algeria for four years, speaking on condition of anonymity. Another diplomat, who works in the economic section of his country’s embassy in Libya, said that developers were inclined to amplify announcements in the hope of creating more impact than the projects necessarily merited. “The aim seems to get hold of a few plots of land and to speculate. Economic logic is not always the key objective,” he said.

But, should the announced projects be built, some are so large and ambitious that they would inevitably strain the local infrastructure. In Tunisia, for example, a country with an annual gross domestic product of $30bn, Sama Dubai, an affiliate of Dubai Holding, has launched a $25bn mixed-use project called Mediterranean Gate on the northern lake shore of Tunis. Covering 830 hectares, it is planned to house half a million people – one-quarter of the population of greater Tunis – with office space for more than 2,500 companies.

Also on the lake’s northern shore, a Sharjah-based developer, Bukhatir, has begun work on the $3bn Tunis Sports City. However, the scale of these developments raises the question of how they will be built. The Tunisian construction industry is driven by local companies, which have neither the size, experience or expertise to build 40-storey towers, and a low production capacity for building materials will necessitate imports on a vast scale.

Furthermore, there are fears that the first developments may suck the market dry. Eighty per cent of Tunisians already own homes and few can afford new million-dollar ones. While the assumption is that these developments will also be pitched to expats, Tunisia faces strong competition from the rest of North Africa, especially Morocco, which opened its property market much earlier and thus has more developed systems in place that reassure foreign buyers.

Despite these risks, two more projects in Tunis have recently been announced, including the $10bn Bled el Warda mixed-use development, to be built by Al Maabar, a joint venture between Abu Dhabi’s five main developers – Aldar, Sorouh, Al Qudra, Mubadala and Reem Investments.

In Libya, the government has chosen Dubai’s growth model and attention-grabbing buildings to possibly replicate, symbolising the regime’s “success” on the 40th anniversary of the revolution in September next year. Last year in Tripoli, buildings covering hundreds of square metres of land were demolished with a view to possible redevelopment. UAE-based developers are seizing the opportunity. Hydra, from Dubai, is building its first office tower in Tripoli and two “mega-cities” have been announced. Tameer has announced a $20bn development in the east of the country, while Emaar signed a memorandum of understanding in November last year with Col Muammar Gaddafi’s son, Saadi, the chairman of Zowara-Abu Kamash development zone. Under that agreement, Emaar would develop a free zone of 380 square km on the coast near the Tunisian border, 24km west of Tripoli.

No date has been announced for the ground-breaking of either project, and one issue that may be contributing to the delay of the Emaar development is that the area is home to a population of Berber minorities, many of whom would need to be re-housed.

Al Maabar, too, has entered the Libyan market, starting work on a development in Tripoli. Hotels, residences and malls would fill 350,000 square metres, with a value of $350m to $400m, said Yousef al Nowais, the managing director of Maabar, adding that the company had two other Libyan projects in the pipeline.

Algeria, where the UAE minister of economy, Sultan bin Saeed al Mansouri, has predicted investments by the UAE of about $50bn in the next few years, has been slower than its neighbours to take off. Unlike in Morocco or Tunisia, the government is reluctant to cede land to developers, or to sell it at a low price.

As a result, the UAE model – of obtaining land at minimal cost and selling properties off-plan to fund the building of projects – does not work there and some developers have found it difficult to kickstart their projects. In July 2006, when Emaar announced a number of other projects – including the redevelopment of Algiers Bay – the value it cited of up to $25bn caused quite a stir, as did the models of vast coastal developments that the developer displayed.

However, little more has been heard of the Algiers Bay project. Two months ago, the Algerian minister of industry and investment, Hamid Temmar, confirmed that Emaar had invested in three other projects, with a total value of $5bn.

Meanwhile, Emirates International Investment Company (EIIC), an Abu Dhabi-based developer, has begun works on a $5bn project called Dunia Park, a community spanning 670 hectares on the southeastern fringes of Algiers.

The property sector has attracted half of all GCC investments in Morocco, the country most open to property investment from foreigners. Development here is targeting tourism and upmarket housing for expatriates and the local elite, rather than meeting affordable housing needs.

A number of projects are well underway. A huge development near Rabat, called Vallée du Bouregreg, was launched in 2006 and is set to be Morocco’s largest business hub. The first phase will cost nearly $4bn and is divided in two sections: Bab el Bahr, developed by Maabar, and Amwaj, developed by Sama Dubai. Among other projects, Emaar has launched a $600m mixed-use community on 300 hectares near Tangiers.

“Investing in Rabat’s economic development as a capital makes sense and the amount [or investment] is manageable,” said a European diplomat in the capital, expressing doubts about the viability of other parts of the country, particularly the overheated Marrakech market.

Comparing Morocco with elsewhere in the Maghreb, he wondered if many of those projects would ever be built, raising North Africa’s age-old spectre of corruption. “In my opinion, investing $10bn or so in a new city in Tunisia doesn’t make any sense,” he said. “It seems that the only realistic figure is the percentage of the $10bn that certain people in the local government may expect in commission.”