Following on from Emaar’s recent announcement that they will merge with selected parts of Dubai Holdings, another merger has just been announced  -  Standard & Poor’s Ratings Services said today that it had decided to keep its ‘A’ long-term credit ratings on Dubai-based real estate developer and hotel operator Dubai Holding Commercial Operations Group LLC after an announcement that the company will now merge with Emaar. This is the S&P press release:

“The CreditWatch status reflects our need to review our assessment of the likelihood of sufficient and timely extraordinary government support for DHCOG as a result of recent developments in Dubai and the company itself,” said Standard & Poor’s credit analyst Alf Stenqvist.

The existing ratings on DHCOG reflect its key role in executing part of the government of Dubai’s plan to develop the emirate into a major hub for commerce and tourism, and its 97.4% ownership by Sheikh Mohammed Bin Rashid Al Maktoum, the ruler of Dubai. DHCOG is one of three major government-related masterplan developers in Dubai, and has been gifted land by the government to pursue key infrastructure and real estate developments in the emirate.

On April 30, 2009 we placed all Dubai government-related entities (GREs), including DHCOG, on CreditWatch with negative implications in line with our view of increased likelihood that the government of Dubai was considering the restructuring of debt in one of its key GREs, Nakheel (unrated). As articulated at the time, we reviewed all rated Dubai GREs because such a possibility stood at odds with our prior expectation that the government of Dubai was committed to providing extraordinary support to all its key GREs to allow them to service their respective obligations in a full and timely manner. This expectation had been factored into the ratings on Dubai GREs, providing significant uplift from their stand-alone credit profiles.

On June 26, 2009, it was announced that DHCOG intended tomerge its three real estate businesses (Dubai Properties LLC, Sama Duabi LLC, and Tatweer LLC) with (Emaar, BBB+/Watch Dev/–). Emaar is also one of the three government-related master developers in Dubai, being 32% owned by the government. Details of the merger are not yet public, and it is estimated that the process of consolidation will take about four months to complete.

The combination of Emaar and DHCOG’s real estate businesses would likely increase DHCOG’s importance in the development of Dubai, although we assume that the merged entity would not be fully owned by DHCOG or indirectly by the ruler of Dubai or the government. A merger would create possibilities for synergies and strengthen DHCOG’s position in the Dubai real estate market, which however is currently is experiencing a severe downturn. The benefit on DHCOG’s credit quality will also depend on the new entity’s capital structure.

The ratings could be lowered if, following a review, we believe that the likelihood of sufficient and timely extraordinary government support is lower than we currently assume. In resolving the CreditWatch listing we will reassess DHCOG’s importance to the government and the development of Dubai combined with its future ownership structure within the prospective combined entity. We will also review the impact of the prospective merger on DHCOG’s stand-alone credit quality, future business and financial strategies, and the capital structure of the merged entity. Standard and Poor’s

My thinking is that this will serve to add yet more confusion and uncertainty in the Dubai marketplace - with what little privately owned stock there is being gobbled up by government entities.

According to “The National,” a major Dubai newspaper, Dubai is expected to release yet another set of laws governing the property industry. There is a growing number of disputes between small property investors and developers in Dubai and prices continue to fall. This is what The National has to say:

The Government recently published Law 9 of 2009, an amendment that introduced a sliding scale of refunds for buyers who defaulted on their purchase plans for property in off-plan developments.

But the bigger changes are likely to come with the introduction of regulations this summer, possibly as soon as next month, which provide details on how Law 9 and other property laws are to be interpreted and administered going forward.

Law 9 provided the clearest guidelines yet about the issue of defaults and significantly increased the power of the Real Estate Regulatory Agency (RERA) and Dubai Land Department by making them the final judges on every default, and giving RERA the authority to cancel projects.

“The whole purpose is to put the purchaser in a situation of security,” said Mohammed Kamal, the head of the property practice at Lovells. “Currently there are some very bad situations where purchasers have no certainty on what is going to happen.”

Emad Farouq, a senior legal counsel at the Dubai Land Department, said recently that the new regulations would mostly focus on the procedure for terminating a purchase agreement, the payment of damages, and the rights and obligations of a developer when reselling a unit after a contract was terminated.

One problem with the law by itself is that many cases fall outside of the situations described in its wording. One example is a purchaser who has paid 80 per cent on a home, but defaults on the remaining amount after completion of the unit. Law 9 says in this case, the buyer loses all their money, which would be clearly “unfair”, said Michael Lunjevich, the head of the property practice at Hadef and Partners.

In this case, the regulations should spell out a situation where the buyer could still receive the unit and owe the developer the remaining 20 per cent, Mr Lunjevich said.

“The broader regulations being discussed will take into account the totality of the property laws and the overall purposes of the changes,” he said.

The regulations are expected to deal with how RERA will assess a project’s viability before making a decision on how to cancel it. For instance, RERA might work with third-party experts to determine the viability of projects, Mr Farouq said.

One of the most pressing issues, according to lawyers, is what happens in cases where RERA cancels a project but there is no money left in the escrow account. According to the law, the investors are supposed to receive a complete refund.

“Investors are calling me every week with situations like this,” said Ludmila Yamalova, a lawyer with Al Sayyah Legal Consultants and Advocates in Dubai. “There needs to be some kind of mechanism besides just going to court.”
Lawyers said possibilities would include a RERA-sanctioned auction of assets such as land or, if the project is further along in development, the sale of an unfinished building to a distressed asset fund.

But not all cases will be resolved to investors’ satisfaction. The economy was entering a painful cycle that would see the end of some developers and many investors losing money, said Mr Lunjevich.

“People got caught up in the euphoria of the never-ending boom,” he said. “Some people jumped on the boom wagon too late and it is devastating their financial position … we need to get down to the cold, hard reality of ambitious projects not being built and people losing a lot of money.

“In 12 to 18 months, Dubai will get rid of the bad investors and the bad projects.” Source

I feel this move is unlikely to do anything other than confuse an already confused situation. These new rules come after several other sets of regulations have been introduced, most of which were “interpreted,” in favor of the developers.These are some recent articles about the situation in Dubai:

• A group of investors is petitioning RERA to cancel a project which was misleadingly sold as part-built, when in fact there is just a hgole in the ground. Property investors scammed in Dubai
• The recently amended law no 9 still favors the developers - all of which are government-owned. Law number 9 favors Dubai developers
• Dubai’s first property auction was a flop. Dubai property auction
• Dubai would appear to be a risky investment destination at the moment. Buying investment property in Dubai
• The luxury end of Dubai’s market has been hard hit by the downturn. Dubai luxury real estate

Ebony Ivory Investors Group, 500 international property buyers and investors, have signed a petition requesting Dubai’s Real Estate Regulatory Authority (RERA) and the Dubai Ruler’s Court to investigate the Jumeirah Lakes Towers Ebony Ivory Towers project, involving Al Fajer Properties and its marketing agent Dynasty Zarooni

Fake Advertising

The petitioners have asked RERA to cancel the Ebony Ivory project and require Al Fajer Properties to provide a full refund, alleging legal violations by the developer, including fake construction photographs and misleading press releases.

“We have paid approximately $140 million and have a signed contract from Sheikh Maktoum Bin Hasher Al Maktoum,” said Moses Oye, spokesperson for the affected investors from the US, Canada, UK, Russia, India, Iran, Pakistan and other nations. “Now, we want our money back.”

The investor group said it is essential for RERA to conduct a comprehensive and transparent investigation to resolve the matter quickly because of the potential damage it may cause to overall investor confidence in Dubai. “We understand that Al Fajer Properties is controlled by a powerful member of Dubai’s ruling family,” added Oye. “However, if our complaints are not treated as per the rule of law, that will damage the reputation of the Dubai government, which we believe has always stood for transparency, accountability and implementation of the rule of law for all.”

In its complaint, the investor group cited advertisements in a local daily newspaper published in July, 2008 that show construction cranes with Al Fajer Properties logo and a structure rising six floors above ground. The caption read: “Shot on location on 10th June 2008, Ebony Ivory, Jumeirah Lakes Towers.

However, independent media reports have confirmed that the photographs actually showed Al Fajer’s other project, Jumeirah Business Centre Towers.

In reality, the site for Ebony Ivory Towers is merely a hole on the ground with no workers or machinery on site.

The investor group has sought for an explanation from Al Fajer Properties and has raised the issue with RERA on a number of occasions, without receiving a response for the past six months.

Now the investor group is ready to seek further legal action against Al Fajer Properties and Dynasty Zarooni.

-Ends-

Contacts
For Ebony Ivory Investors Group:
Moses Oye, +447956289390
Fax: +442084590202
ebonyivoryinvestorsgroup@yahoo.com

The latest press release, I ,mean editorial, I mean advertorial from Emirates Business is pretty clear that Dubai’s property bubble has finished deflating and we are back to boom times. Hold on to your hats!

“Most industry participants and analysts yesterday agreed with an HSBC research report that said the gloom and doom in Dubai’s real estate sector has ended, with property prices bottoming and initial signs of confidence returning.

“Distressed stock is gradually clearing, with further signs of consolidation as volumes continue to pick up. Also, more recently, mortgage providers have moved to ease their requirements, raising loan-to-value (LTV) and relaxing credit norms, which we view as a further sign of some normalcy returning to the market,” HSBC said.

According to the bank, the May transaction survey suggests that the market is starting to bottom out, with agreed prices up four per cent and five per cent month-on-month in April and May, respectively.

Apartment prices (which account for 85 per cent of transactions) are up nine per cent in May, villa prices continue to come under pressure, down 11 per cent month-on-month. Villa agreed prices have now fallen 49 per cent since a September 2008 peak, compared to only 16 per cent for apartments, HSBC said.”

This is strangely at odds with the fact that not one single property sold at Dubai’s first property auction; the amount of discounted property in my inbox has gone through the roof; and a minuscule increase in median property prices does not a summer make. Speaking of summer, Arabian money rightly points out that the summer exodus is about to begin and the reason the stock market rose was largely down to an increase in oil prices.

And the HSBC reports also states: “1). With the summer approaching volumes are likely to soften leading to short-term price volatility. 2). The school year coming to an end in June, and more supply coming on the market could lead to renewed (real estate) price weakness. 3). A further downturn in the global economic environment is likely to have an adverse effect on the market.”