DUBAI // Investors and developers on stalled housing developments have begun forming partnerships to try to end the stalemate affecting hundreds of half-built projects around the country. One group of investors at Park Towers in Dubailand has already struck a deal with its developer to co-own the land and decide whether to build it or sell the site.
"We think this is a good model for Dubai," said Rakesh Wifi, an investor in the project who signed the new contract. "The developer could have forfeited our money under the law. But he has decided to make us partners. When the market recovers, we can decide to sell our land or put more money in to build it." Hundreds of projects in Dubai, and to a lesser extent in Abu Dhabi, have ground to a halt as buyers are reluctant to make payments and developers are unable to continue building without funds from pre-sales.
Of the 1,110 construction projects in Dubai, 243 are cancelled or indefinitely on hold, according to the industry auditing company Proleads. These buildings would have been worth US$331 billion (Dh1.21 trillion) if they had proceeded as planned. Of the remaining 867 projects, only a "very small percentage" were being completed as scheduled, said Emil Rademeyer, the director of Proleads. The Real Estate Regulatory Agency's (RERA) own audits of construction show a similar slowdown. An analysis by The National of 742 building reports available on RERA's website last month showed just 7 per cent of projects are on schedule. Another 6 per cent have not yet started; 66 per cent are delayed or seriously delayed; and 20 per cent are on hold.
Marwan bin Ghalita, the chief executive of RERA, said the Government advocated agreements that helped projects to progress. "The recommended course to resolve disputes is through negotiation and agreement, and then, only if this fails, to move to arbitration and finally the courts," Mr bin Ghalita said. He said agreements such as the one at the Park Towers project would be approved by RERA if it was in a legal document signed by all parties, and in accordance with the laws and regulations of Dubai.
"A form of partnership might therefore be a suitable way of resolving what to do to satisfy everyone's interests without having recourse to the courts," Mr bin Ghalita said. "If this is the preferred option and there is full agreement between all parties the formal agreement should be registered with the legal section and a full financial audit carried out as the next necessary step in order to move to finalise the arrangement."
Mr Wifi said each buyer who signed the contract would become a co-owner in the land according to how much money they had invested. No further payments would be required until all the parties agreed on what to do with the development, according to a copy of the contract seen by The National. The project has made no substantial construction progress at this point. If they agree to finish construction, the investors do not necessarily have to put more money into the project. They can opt to allow the developer to sell their original unit and be repaid for the portion of land they own, the agreement said.
Arshad Wahedna, the director of Gulf Investments and developer of Park Towers, declined to comment. After the dramatic drop in both prices and number of transactions in Dubai, developers have been using different strategies to get projects restarted. Some have gone to RERA and the Dubai Land Department to request cancellations of the contracts with buyers who have defaulted. Others have tried to shift buyers to other projects that are further along in construction.
Investors have also formed groups to negotiate as a bloc and increase their bargaining power. "Developers have no choice but to negotiate with investors," said Rishi Aggarwal, a property investor in projects around Dubai. "Right now, we have the upper hand despite what developers want to claim." One of the biggest obstacles to the property market's recovery is financing. Amlak Finance and Tamweel, the largest lenders during the boom times, have stopped lending since November 2008 because of funding issues caused by the global financial crisis.
Other banks have sharply reduced their lending, leaving developers and buyers without the means to buy homes without large downpayments. "Regardless of whether someone wants to create a joint venture or partnership for a development, the key is bank financing," said Adel Lootah, the executive director of the Dubai Property Society. "If neither party has liquidity, then no scenario can work." @Email:bhope@thenational.ae
