About one in five investors in Hydra Properties, an Abu Dhabi-based developer, is behind with their payments, the company said on Sunday. Developers across the country have been reporting higher default rates in the wake of the property downturn. Some buyers are having trouble affording their purchases, while others simply want out of their obligations because prices have dropped precipitously and sales are slow.
"It looks like they are having problems with financing," Matar al Shamisi, the deputy commercial director of the company, said of the buyers in default. "We are trying to help them." Hydra is looking to form partnerships with local financial institutions to get mortgages for buyers, including Reem Finance, Aseel Finanace, Abu Dhabi Finance and Al Hilal Bank, he added. Investors in the project, however, said that a lack of confidence in the company was holding up payments. Hydra has been negotiating with a group of about 350 members since April over issues with contracts and changes to the Hydra Village project that led to higher prices for some. Hydra has also sold units in several towers on Reem Island and in Dubai.
"A lot of people are holding back," said Graeme Perry, the deputy chairman of the Hydra Investors Committee. "Nobody is ready to give more money until there is more assurance." The key issue remains the wording of the contract, Mr Perry said. Hydra agreed to make some changes, like allowing investors who paid 50 per cent to delay future payments until after their apartment or villa is delivered and making a late payment clause less strict. But Mr Perry said it was still too "one-sided". Some members of the group are considering filing a lawsuit against Hydra to recover their investments.
Sorouh Real Estate said the portion of payments that were past due increased to 8 per cent in the second quarter from 4 per cent in the quarter earlier. Aldar Properties said between 10 and 15 per cent of payments were past due. How developers deal with these troubled buyers is becoming an important sign of how a company is going to fare in the financial crisis, analysts say. One of the most proactive plans is from Deyaar Development, which has created a distressed asset fund in partnership with Dubai Islamic Bank (DIB) and other investors.
When a buyer defaults and has no way of rescheduling payments, the fund will buy the property at a discount and hold onto it until the market recovers and the apartments or villas can be sold for a profit. This gives cash to Deyaar and reduces its default rate to the "low single digits", according to Markus Giebel, the company's chief executive. In the wake of the property downturn, a developer's reputation has become an important element in a buyer's decision, said Dr Mohamed Guidoum, chief executive of Remax Absolute Realty in Abu Dhabi.
"After the crisis, it is important to know the financial position of the developer, its reputation for delivering and the finishing of the final project," he said. "All the criticism that has come out about Hydra is making buyers lose confidence." Hydra has undergone major changes in recent months in response to this criticism. Sulaiman al Fahim, the flamboyant founder of the company, was replaced as chief executive by Ali bin Sulayem in June. Mr bin Sulayem, formerly an executive at the Royal Group which fully owns Hydra Properties has taken the reigns and is trying to rebuild confidence.
At a press conference yesterday, Mr bin Sulayem said the company was ploughing forward with construction of its projects. The first 150 villas out of 2,507 in total are "60 per cent complete", he said. The entire project is scheduled for delivery at the end of 2011. It was originally scheduled to be finished by the end of this year. He said the company has restructured to deal with the changing market conditions, including reducing its sales force and creating a more responsive customer service department. Hydra has started taking buyers on tours of Hydra Village, where there are two show villas on display, and dozens of others in the early stages of construction.
Mr bin Sulayem also said the company was starting to take stock of its projects with the possibility of cancelling some of them if they were no longer feasible. "We are reassessing some of our projects," he said, adding that there would be "no reason to continue" a project that has sold only 10 per cent and has unwilling investors. For now, the company has enough cash to continue, but executives at Hydra said the Royal Group would step in to back them if they could not keep up with its obligations.