Dubai Pearl has started sending out cancellation notices to buyers who haven't made their next payment.
Dubai Pearl starts to issue cancellation notices
Investors in the US$6 billion (Dh22.03bn) Dubai Pearl project, one of the most prominent luxury developments in the emirate, have started receiving cancellation notices as the developer raises the stakes in its stand-off with buyers.
Sandra Abeyawickrema and her husband invested in three apartments in the project, and received a letter from the Dubai Land Department this month informing her that if they did not pay several hundreds of thousands of dirhams to meet the next payment, their contracts could be cancelled and their deposits seized.
"We simply cannot come to an agreement with the developer on consolidation and price reduction," Mrs Abeyawickrema said. "We love Dubai Pearl as a project on paper but they won't give realistic prices in today's climate. It doesn't make sense."
The letters from Dubai Pearl follow similar moves from a handful of developers across Dubai since the start of the year. If developers can successfully cancel contracts, they are able to avoid refunding any money to buyers. But if developers fail to make construction progress, the regulator may cancel projects and require them to pay back investors.
Investors have the option to contest cancellation before it becomes official. Dubai Pearl has offered major discounts, as much as 30 per cent in some cases. Due to the steep decline in property prices, however, investors said even if they kept paying at that rate they might still lose more money than if they had simply walked away.
Patrick Mills, another investor in the Dubai Pearl, said many fellow investors would prefer the project to be cancelled altogether and thus collect a portion of their down payment as a refund. Mr Mills bought an apartment and a floor of office space in the project.
"They are trying to turn the screws with the cancellation notices," he said. "But if you take a helicopter view, this project is way too big for the market to handle. I struggle to see how they are going to fit that much office space."
Mr Mills, a retired businessman in the UK, said he had already lost some 70 per cent of his savings on Dubai property investments that he has now written off as worthless.
He said he would prefer Dubai Pearl be mothballed for a decade until the market recovered or cancelled so that he could get a partial refund.
Dubai Pearl did not provide details on the number of buyers in default who had been sent cancellation notices but it said the number was "not unusual".
"Given the size and scale of a development such as Dubai Pearl, it is not unusual for some buyers to potentially default on their payments during the course of the construction process," the company said.
"However, the Dubai Pearl team has worked hard with any investors experiencing difficulties to manage this process appropriately, to try and avoid this from happening wherever possible."
Dubai Pearl has been seeking alternative funding to finance the project. The company took a roadshow to Singapore to seek investors and offered some of its major buyers the chance to consolidate if they invested more money into the project.
The company said the $2.5bn first phase of the project was being funded by equity and "quasi-equity" investment, as well as loans and pre-sales of property.
The company is owned by a consortium of investors led by Abu Dhabi's Al Fahim Group.
The Land Department said construction had reached 17.65 per cent completion. Handover is expected in 2013.