DUBAI // The Real Estate Regulatory Agency (RERA) has yet to cancel any construction projects that are showing no sign of being built despite saying last May that it was considering scrapping 27 of them, which would force developers to repay property buyers. As property prices fell last year in Dubai and developers put projects on hold, the agency was given the authority to cancel developments that do not begin construction within six months of being approved.
The RERA later launched an online system to keep track of progress on hundreds of projects in the emirate, and began to monitor the financial stability of developers. So far, however, no projects have been officially scrapped, according to Marwan bin Ghalita, the RERA chief executive. "The only ones that have been cancelled are ones the developers have cancelled themselves because they didn't want to proceed," he said.
Of the 1,110 construction projects in the emirate, 243 have been cancelled or are indefinitely on hold, according to Proleads, a Dubai-based industry auditing firm. Unless a project is scrapped by the RERA, the Dubai Land Department or the developer, the only way investors can get refunds of money invested in stalled projects is through the Dubai Courts. Many investors have avoided this option because of the time and cost involved.
Meanwhile, any funds kept in escrow - an account in which developers must by law deposit all investors' money - must be used to fund construction unless the project is cancelled by the authorities. Under new regulations expected to be published soon, if the authorities cancel a project and the balance in the escrow account does not cover investors' rebates, then the developer has 60 days to repay its clients, unless it is granted an extension. If the developer still fails to repay, then the authorities can refer the matter to the courts. Yet even if an investor is awarded a refund by the courts, there is no guarantee the ruling can be enforced.
"Most of these developers don't have the liquidity to refund, so we're in a catch-22 situation," said Saqib Iqbal, who has paid 30 per cent towards a villa costing Dh1.5 million (US$408,000) in Palm Jebel Ali, one of 1,300 homes that have been delayed indefinitely. "The best thing for developers to do would be to say the projects are 'unlikely to continue', and maybe investors would be willing to settle for a discounted refund."
Lorenza Gazzolla has paid Dh315,000 towards her home at Dubai Lagoon, a housing community that Schon Properties, a Pakistani firm, started to sell in 2005. When construction first stalled in 2008 because of a change in contractors, the developer offered buyers in one section of the project a refund on the basis that they were the first people to buy. Work on the rest of the project, originally due to be completed two years ago, has been slowed as Schon negotiates a new deal with contractors to reduce building costs.
Buyers' payments are now only linked to construction, but with progress looking bleak and little chance of getting a refund, Ms Gazzolla has formed a group with fellow investors to try and find a solution. @Email:firstname.lastname@example.org