Dubai Property Developers Pressured by Small Investors

Small investors in Dubai are forming groups, in an efforts to get their voice heard by the developers. Most developers are simply ignoring contact from individual investors and vigorously pursuing payments on off-plan developments that are now worth a fraction of their original sales prices.  The new interpretation of existing laws by RERA in November 2008 no longer protect them if they default on payments.

At one time, investors were entitled to a minimum of 70% of any money paid to a developer if they defaulted, but RERA’s new interpretation of the law means the developer may keep 30% of the total contract value if an investor defaults. Not quite sure what everybody is not getting about the fact that all the major developers in Dubai are owned by the ruling family - and they write and interpret the laws to suit themselves. Regardless, Dubai is finished as an investment destination unless some progress is made on this front.

The Dubai Property Investors Group, which consists of more than 350 local and international investors, lawyers and smaller real estate developers, have petitioned Dubai's Real Estate Regulatory Authority to act quickly in forcing developers to cancel projects that they feel are no longer viable to avoid a complete collapse of the property market in Dubai, as  fears about the financial strength of some developers and their ability to deliver more than $1 trillion worth of projects.

The petition also called on the Government to cancel large developments now in their early phase, including Dubailand and Nakheel’s Waterfront, because they were no longer sustainable in the dampened market.

The Dubai Property Investors Group was set up to “discuss the protection of the rights of investors in the Dubai property market by seeking a dialogue with the developers and the government to find sustainable, working solutions in these demanding times”, according to the group’s website.

Another group, The Emaar Investor Group, made up of approximately 200 individual buyers, last week delivered a petition to the Emaar requesting the cancellation or postponement of three developments - Warsan Estate, Asmaran and Maysan. The group is asking Emaar to refund any money paid to date, to transfer any money invested to other Emaar units, or to provide a credit note for an equal amount.

A spokesperson for Emaar, which is building the world's tallest tower in Dubai, confirmed on Thursday that the company had received the investors' request and said it "(would) consider their proposals seriously."

Will Dubailand be canceled?

The spokesperson added that "Emaar is committed to upholding the interests of all our customers and stakeholders, especially given the current economic conditions."

Investors are becoming increasingly nervous as Dubai's bubble bursts. In recent months, financing has evaporated, sales have slumped, developers and brokers are cutting jobs and prices in some areas have fallen sharply.

"The Warsan Estate, Asmaran and Maysan projects are no longer viable," the The Emaar Investor Group said in its petition. "There is no demand as many investors have already left the market leaving an oversupply, there is no money available to investors to continue payments, and there is no value in these projects as they are priced far above the market value of similar and better located projects in Dubai."

As the property market crashes, developers such as Emaar are being forced to review project requirements. Last month, the company said it was putting future real estate projects on hold to stem the oversupply of units in Dubai. As it is, there will be an estimated 70,000 new units released for sale in Dubai in 2009, far more than can reasonably be sold. The company said it would concentrate on completing all projects it has already started to build but added that new launches would depend on supply and demand.

Emaar's Warsan Estate, Asmaran and Maysan projects were launched in May and June 2008 at the height of Dubai's real estate boom. At the time, units sold for more than Dh2,000 per square foot, but prices are now around 50% lower. As conditions get worse, disgruntled investors and buyers are becoming more vocal about their concerns.

Many are unable to continue payments thanks to lack of financing, and many have been asked to make payments on developments that are clearly not going to be completed, and those projects that do get pushed through to completion will only depress property values further. Getting money out of a Dubai developer is like getting blood out of a stone - you have to squeeze very hard, and certainly the level of frustration with the developers has been rising for some time. Investors in the Trump Towers project by Nakheel  - which has now been canceled - are being refused refunds and offered an investment in a cheaper alternative instead.

As Donald Trump might say, "See you in Court."