Dubai Realty Firms Squeeze Clients for Mirages

Until the global credit crisis rocked the Dubai real estate projects, way back in 2008, people continued to invest in these projects blindly without any logical personal debt management. The fallout – both builders and clients could not keep their promises, the former failed to deliver or even start work on the contractual obligations and the latter defaulted on installments.

Bloomberg reported that Emaar Properties PJSC, the UAE’s largest developer is still collecting installments and fines from about 400 buyers for two non-existent towers called 29 Boulevard. According to Mehdi Nosratlu, who heads a group of investors negotiating with Emaar, most of them have paid 30-65 percent of the average purchase price of about half a million USD on this 45-storey twin towers. Proleads, a Dubai-based market researcher estimates builders in the emirate have delayed or cancelled projects worth about $330bn.

In addition to Emaar, several others including Union Properties and Nakheel are entangled in similar issues with their buyers. Sources say there are plenty of cases pending in law court related to real estate disputes. One of the recent decrees by Dubai government orders that property developers whose projects never got off the ground due to their "failure or negligence" are not allowed to keep any funds prepaid by individual investors.

The new laws carved out for this special purpose from hardly three years of Dubai realty contractual laws is believed to protect customer rights. Major feature is that it will help purchasers who entered boom-time sales contracts with developers, but came up empty-handed awaiting real estate projects that never started.

Sadly, during the realty windfall, many have entered into contracts without proper scrutiny of the deal providing undue advantages to the builders. Prima facie, it is not clear that the new laws will have any positive impact on those entered into deals in a hasty manner.

Deutsche Bank's proprietary price index, which covers 13 main locations in Dubai, indicated that average housing prices for apartments declined 1.1 percent on a month-on-month basis, while villas slipped 1.7 percent on similar scale in March. Dubai's real estate market saw a freefall for 18 months with property prices falling over 50 percent from their mid-2008 highs.

By Jose Roy