We have all heard about Plan Abu Dhabi 2030, the blueprint outlining the capital's plans to triple in size in two decades. As for Dubai, a drive down Sheikh Zayed Road is enough to see a megacity in the making without reference to its Strategic Plan 2015. But I am afraid the scale of Ajman's ambitions to build its own forest of towers had passed me by. Only in the past few weeks, when the Ajman Government moved to restore confidence in its property sector, has the scale of Ajman's earlier ambitions become clear.
The emirate has no less than 900 towers on its drawing board to be built by 2012, according to industry executives who are trying to bring some order to the sector. With each tower an average of 20 storeys, a conservative estimate would indicate that about 150,000 housing units would become available in the emirate over the next three years if they were all completed. Even during boom times, this seems a big ask for Ajman, whose main selling point was its proximity to Dubai and the promise of a residence visa to go with the property.
Now the growth has slowed, and the promise of a visa has been withdrawn, Ajman's plan is looking optimistic, to say the least. Infrastructure limitations are just one of the obstacles to Plan Ajman 2012, if such a plan was ever put to paper. Dozens of buildings that have been completed in Ajman and Sharjah are without access to municipal water and power. But perhaps the greatest threat to Ajman's property market is its reputation as a test-bed for the "leveraged off-plan" property model, with some developers building investment schemes on top of their real estate offerings.
The practice is not exclusive to Ajman. An inquiry by Dubai Police into Al Barakah, a property developer, has also uncovered examples of such schemes in other emirates. But the large number of projects in Ajman, along with limited progress in terms of construction, could be seen as a symptom of the scale of the leverage at work. Dubai, by comparison, has 648 property projects registered and much more activity to show for them.
The leveraged off-plan model involves a developer making a small down payment for land and, before taking possession or starting construction, selling it on to a marketing outfit for a margin. In some cases, the off-plan model bred a speculative property chain where towers were sold and resold based on fancy computer-generated images, huge marketing budgets and a large dose of greed. At its most insidious, this model also features a buyback option, where the developer or marketer would promise a guaranteed return to investors after six months or a year.
As prices were rising at 10 per cent per month for a while last year, everyone along the chain was making money. But it all changed when Lehman Brothers collapsed in September and the global financial system froze. Speculators tried and often failed to cash in their buybacks. Investors sought buyers for their "properties" as prices fell sharply. In some cases, one wonders whether some developers had any intention of delivering a building at all.
Ajman appears to be getting to grips with its freewheeling property sector with the establishment of a Real Estate Regulatory Authority, which has now required developers to register their projects and set up escrow accounts with the deposits made so far. The government has also retaken control of the Marmooka City project, which alone consists of 200 proposed towers, buying out its partner to address problems of land ownership, infrastructure and some cases of suspected fraud.
It will be a long road ahead for the regulator, which will undoubtedly be faced with hundreds of unhappy investors. The experience of Ajman illustrates that successful property development is much more than just making money from land or marketing homes based on computer-generated images to people eager to make a quick buck. Regulation is undoubtedly one response to a market that has spun out of control, but there is no substitute for proper planning and careful choice of partners.
Abu Dhabi, for example, has no regulator, but the government kept close control of its land and chose its partners carefully as it embarked on its 20-year plan. Plan Ajman 2012 may not exist on paper, but it has already caused enough pain, not least for the regulator who has been called in to clear up the mess. @Email:email@example.com