The developer of a long-stalled project in Ras al Khaimah has taken the unusual step of asking buyers to resume making payments on their unfinished apartments to help restart construction.
In exchange, Khoie Properties is offering to reduce the price of the apartments by 25 to 35 per cent in the first phase of the Dh2.5 billion (US$680.6 million) La Hoya Bay development, which was originally scheduled for completion in 2008.
More than 700 people, most from overseas, paid a total of about Dh200m to buy apartments in the development at the height of the building boom in the UAE.
Most of the buyers made initial payments of 20 to 30 per cent, with the balance due when the project was completed. Last July, Khoie Properties announced that Arabtec had been hired to build the development.
But the developer has not been able to arrange financing.
"The financing people have a simple question, show us proof that if you build it buyers will come and pay the 70 per cent," said Frank Khoie, the chairman of Khoie Properties.
Many of the original buyers are likely to walk away from their deposits rather than pay the money owed on their apartments, Mr Khoie acknowledged.
In many cases, the apartments may be worth less than the amount owed.
Prices have fallen 30 to 40 per cent in Ras al Khaimah since the project went on the market. And some buyers no longer have the resources to complete their purchases. Khoie is offering to cap prices for apartments at Dh950 a square foot if buyers agree to begin quarterly payments when construction resumes.
Most buyers had contracted to pay between Dh1,200 and Dh1,300 a sq ft for their apartments.
The money will be held in an escrow account and will be released to contractors only with the approval of the Ras Al Khaimah Investment Authority (Rakia) and representatives of the Royal Institution of Chartered Surveyors, the architects and Khoie.
Payments will be tied to the progress of construction.
"It is impossible for me to touch a dime," Mr Khoie said.
About half of the buyers responding to the offer have expressed interest, Mr Khoie said. But buyers were sceptical.
One investor who asked not to be named questioned whether the project was a good deal, even at the reduced price of Dh950 a sq ft.
"You can buy a ready property in the resell market for Dh600 a sq ft," the buyer said. "Who will invest in a speculative off-plan project at more than the market rate?"
La Hoya Bay, a bellwether project for Ras al Khaimah, covers 1.5 million sq ft on the man-made Al Marjan islands.
Khoie owns title to about 330,000 sq ft of the property, with the rest covered in options with Rakia.
In 2009, Mr Khoie went to jail for 11 months after bouncing cheques written to Rakia.
Some investors have openly questioned what happened to the initial Dh200m paid by buyers. But Mr Khoie says all the money went into the project, including Dh72m to buy land and Dh100m for construction and development costs.
"Every dime and dirham has gone directly into project-related costs," Mr Khoie said.
Many developers in the UAE cancelled projects and fled the country amid the economic downturn. But Mr Khoie has said he remains committed to building La Hoya Bay.