Dubai's second largest developer will set up an asset fund to house property on which its customers have missed payments.
Deyaar to bank defaulters' properties
Deyaar Development, Dubai's second-largest developer, will set up an asset fund for properties on which its customers have defaulted until conditions improve and they can be resold. Dubai's property sector has struggled over the past few months as prices have fallen and finance has dried up. Many buyers are battling to meet payments, forcing developers to take possession of homes they are reluctant to sell into a weak market. As part of a new strategy, Deyaar will hold on to defaulted properties, possibly leasing them until they can be resold. "This is a completely new type of fund," said Markus Giebel, the chief executive of Deyaar. "If people can't pay up any more, the fund will hold the property. "We can't sell it now or dump the price as it will destabilise Dubai prices, so we will hold assets for three to four years and maybe lease them until the market comes back to sell." Deyaar has also signed deals with three banks to help its clients with mortgages. The slowdown has prompted other Dubai developers to re-adjust their prices in line with lower construction costs. Mada'in Properties has cut the price of its properties to existing buyers by 30 per cent, while Union Properties has offered customers a 10 per cent discount on remaining payments. In Abu Dhabi, where launch prices last year rose above Dh2,500 (US$680.64) a square foot, Bloom Properties is lowering prices in its key project, Bloom Gardens, with discounts extended to clients who had already bought a villa. Arady, an Abu Dhabi-based private equity group focused on the property sector, has said it would cut prices at The Helix towers on Reem Island by about 20 per cent. Aldar Properties is also reviewing its strategy, which could mean cutting the price of property already sold, as well as allowing customers to transfer their units to other projects. "We are considering various options and conducting research about what price range is acceptable to end-users and investors, and what product is required," said Rami Nasser, the company's director of sales. "We are looking at what other developers are doing. We are aware of what is happening in Dubai. Options vary from shifting buyers from one development to another or renegotiating the process with buyers." Deyaar's strategy, aimed at reducing the risk of defaults and their effects, will also include immediate price reductions of between 25 per cent and 30 per cent on units sold across projects in Business Bay. The move is a response to falling construction costs and will involve price reductions at Bristol Office Tower and Bristol Residential Tower, Oxford Tower, an office project, and Fairview Residency. Meanwhile, those who bought off-plan in the Deyaar Park and Mirar Residences projects, which have been put on hold, will be able to transfer their units to a project that is under construction. Customers who choose to do this will be given a 10 per cent refund on the amount they have paid so far. The 40 or so customers who invested in Deyaar Enclave, a project launched for sale just before the slowdown hit and was then put on hold, will be offered full refunds. Deyaar will also enable those who bought more than one property to reduce their portfolio to mitigate the risk of default and replace the original payment schedule with smaller payments over an extended period. "The financial strategy has been developed to safeguard our customers by stabilising their cash flows and helping them secure easier access to finance," said Mr Giebel. "This, in turn, will result in lower risk of defaults and lower receivables risk for Deyaar, maintaining the company's healthy cash flow." Mr Giebel said Deyaar faced a potential 60 per cent default rate due to buyers struggling to pay for property that fell under three different "toxic asset classes". The first and second bad assets were considered to be projects in an area where delayed infrastructure was likely to stall construction, or property with values no longer holding up, for which customers were reluctant to continue paying. The third class was for buyers who could no longer afford to pay. Mr Giebel said that while the company would not be able to assist all customers, the strategy should help bring the default level down to a single-digit figure. * additional reporting by Nathalie Gillet email@example.com