Investors refuse to pay for Sokook project, which is already three years overdue.
Buyers walk as Ivory Tower work halts
Foundation work on the long-delayed Ivory Tower in Dubai, which began six months ago, has again reached a standstill. Hundreds of buyers are walking away from their investment in the Sokook Investment Group's project, which is already three years overdue. "Why should we pay for an imaginary tower?" asked one investor who declined to be named. It is yet another property development in Dubai that highlights the problems associated with selling off-plan, as buyers are now refusing to pay for something they have lost faith in and the developer has no cash to continue construction.
Mohammed Binghalib, the director of Sokook Investment Group, said he had not drawn a salary for the past nine months. Mr Binghalib has also trimmed staff and other overheads at the firm, which is owned by a group of investors from Saudi Arabia, to compensate for limited cash flow. He is now trying to get investors to pay 30 per cent to cover the cost of foundations work, while the rest will be paid in line with construction, according to a new payment plan drawn up with the Dubai Real Estate Regulatory Authority (RERA) this year.
"People just don't want to pay," said Mr Binghalib. "There are some people who are genuine buyers and pay without any problems, but there are others without any proper finances. Maybe they were earning Dh10,000 (US$2,723) a month and bought six apartments. They're now fighting us. "I have to pay money out. The contractor is calling me all the time for money. They will put charges on us for late payment. This is such a mess."
Some purchasers are refusing to comply with the new payment plan, saying that with construction languishing for more than three years, they fear the Ivory Tower will never be built. Mr Binghalib said the delay was caused by a dispute over the land with TECOM, the master developer of the International Media Production Zone (IMPZ), where Ivory Tower is located. The dispute was only resolved with the help of the Dubai Land Department last summer.
Buyers were unnerved early last year after they received letters from Sokook saying their contracts would be cancelled and 20 per cent of the sale price retained. They were told the decision had been taken because they were in arrears in instalment payments, despite Sokook informing them in 2007 that no further payment was due until construction began. Buyers insisted that Sokook was trying to take back the apartments, which were sold for up to Dh650 a square foot, and sell them on for more.
More than 100 buyers are now believed to have defaulted on their payments, preferring to cut their losses. "I have paid Dh1 million for three units, but I have nothing," said one buyer, who asked not to be named. "I have visited the site many times and it's only a small construction job. "They have taken money from people and they're doing nothing. And they cannot say it's because of the economic crisis because it was supposed to be ready in 2008."
Mr Binghalib blamed speculators but said the experience had taught him that the company should have done a proper financial assessment on its customers. But he said a handful of "good customers" were continuing to pay, although the company needed most customers to fulfil their obligations for the building's completion, which had now been scheduled for the end of 2011. "If they have a problem paying, they can come to me and we can solve it," Mr Binghalib said. "But if they don't settle amicably they will also have bad credit."
Mr Binghalib said that all money collected for the project had been held in an escrow account and invested only in the project. The company's strategy now is to try and collect 30 per cent from buyers before beginning main construction. Under a law issued by RERA this year, if buyers default after this, Sokook is entitled to keep 30 per cent of the value of the property. "The people who will not pay, they will go down and then we will look at how many apartments are left and we will build it ourselves [with money from the parent company]," said Mr Binghalib.