Up to one in 12 buyers are expected to default on contracts to buy units on Al Reem Island,a figure lower than the developer expected.
Sorouh upbeat on defaults at Sun and Sky tower projects
Up to one in 12 buyers are expected to default on contracts to buy units on Al Reem Island, says a top executive of Sorouh Real Estate, the project's developer.
Buyers of units in the Sun and Sky towers who default on their contracts typically forfeit a 10 per cent deposit, which for many means the loss of more than Dh100,000.
A 970 square feet, one-bedroom apartment in the 65-storey Sun tower is listed for Dh1.3 million (US$354,000), while a 1,300 sq ft two-bedroom apartment in the 74-storey Sky tower is priced at Dh2.2m.
The company started an aggressive "default avoidance" programme last year for the towers, hoping to stem cancellations that have plagued many developments in the UAE, said Gurjit Singh, Sorouh's chief operating officer.
Buyers were offered the opportunity to rework their contracts and pay reduced prices, Mr Singh added.
The company estimates the number of cancellations to be between 5 and 8 per cent, lower than it expected given the property market environment elsewhere in the country.
"There has been a minimal incidence of buyers trying to back out," Mr Singh said.
The defaults at Sun and Sky highlight the fact that the Abu Dhabi residential market has not been immune to the downturn in the property market.
Investors are interested in Abu Dhabi property but continue to wait for prices to fall further, said David Dudley, the head of the Abu Dhabi office of Jones Lang LaSalle. He expects the market to remain slow next year before picking up in 2012.
"Middle-income housing is where the bulk of the demand sits in Abu Dhabi," Mr Dudley said.
Sorouh does not plan to start construction on new projects in the next year, Mr Singh said.
"We are concentrating our entire effort on delivery," he said. "A lot of investors are waiting to receive their assets."
Last month a Bank of America Merrill Lynch analyst, Abdelrali el Jattari, speculated that Sorouh might need to arrange additional capital to fund operations.
But Mr Singh said the company was "comfortably funded for the next 12 months", after arranging Dh2.3 billion of financing in July.
Sorouh expects to deliver 2,500 units in the next year, including 1,150 apartments in Sun and Sky, its signature tower projects on Reem Island. After a series of delays, Sorouh expects to begin delivering units in the towers next month or in February, Mr Singh said.
The towers were "100 per cent completed" but were awaiting final approvals from the Government before handovers could begin, he said.
Sorouh hopes Sun and Sky, part of a cluster of eight towers under construction in the Gates District, will help to jump-start other projects on the island. Several sub-developers on the island have delayed projects in recent months.
Financing remains the biggest challenge for developers, Mr Singh said. "Without liquidity flowing into the market, all developers are hamstrung."
The handover of units should also provide a much-needed boost for Sorouh's bottom line. The company reported a 68 per cent drop in profit in the third quarter compared with a year earlier because of a decline in revenue and an increase in finance costs.