Insight The rapid decline in prices has left thousands of people moving into properties that are worth less than they paid for them.
Stalling at the finish line
It should be an exciting time for homeowners who have waited for years for the keys to their new villas. But the rapid decline in prices has left thousands of people moving into properties that are worth less than they paid for them.
Now many are feeling the financial pain as the final handover typically triggers the first loan repayments. At the same time, developers are rushing through completions, often before developments are fully ready for occupation, to book desperately needed revenues. "Some developers obviously do try to speed up the handover because they want their money in," says Charles Neil, the chief executive of Landmark Properties, the property brokerage. "They say the property is ready, but there are still a lot of issues, including in the finishing, for instance."
Tamweel, the second-largest home finance company in the Emirates, last week refused to accept the handover of the first completed properties from The Villa development built by Al Mazaya Holding, located within the Dubailand project. Tamweel is the financier, but also an owner on the housing estate that comprises about 200 homes. Khaldoun Abdul Kader, the executive vice president of Al Mazaya, says the buildings were completed and infrastructure would be finished by the end of the year.
Elsewhere in Dubai, developers are starting to hand over new towers within the Business Bay and Jumeirah Lake Towers developments. "In reality, people can't move in for all sorts of reasons," says Matthew Hammond, the head of agency at Jones Lang LaSalle. "No connection to power, though, is the biggest cause for developers not to be able to hand over." Business Bay, which was originally planned to include 200 towers, is another project where owners have clashed with the developer on handover issues. Many homeowners within the project's 12 towers paid their final instalments in August before being told by Dubai Properties, the master developer, that they would not be able to move in until later this year.
Disputes over "snagging", the process of fixing problems relating to the finishing of new homes, are also becoming more prevalent, brokers say. Investors in Al Reef Villas, a development in Abu Dhabi, have been asked for snagging lists even before their homes have been connected to power and water supplies. "We started the snags in September for the first phase of the project, which will be delivered before the end of this year," says Faiza al Zarouni, the chief operating officer of Manazel, the developer of the project. "Yes, power and water connection is under implementation, but obviously we will not hand over to the owners without the utilities."
Brokers say owners should be extra-vigilant of snagging issues and should not accept properties that have not been properly finished. "It is not usual to do the snags without having power and water," says Mr Neil from Landmark Properties. "You've got to check all the equipment, whether the AC is working or not for instance, you need to see that the water is running - all this before the handover. You should not accept the unit unless the water and electricity have been connected up."
Developers are also likely to encounter more handover-related problems on buildings where 70 per cent or more of the purchase price is required on completion. "Many buyers have not secured a mortgage for their last payment," says Mr Neil. "That is one of the big issues at the moment. The majority of the payment plans for off-plan properties here include a big payment in the end, after completion, often about 70 per cent. The reason the developers did this was to sell, as buyers wanted a small payment upfront to flip the units and make a premium."
Some buildings within the Jumeirah Lake Towers development reaching completion are understood to feature this kind of payment plan. Other towers in Abu Dhabi were sold in the same way. "Many investors who bought those properties at Dh2,500 (US$680) per square metre before the downturn thought it was not necessary to get a mortgage," says Susan Cronin, a consultant with Aljar Properties. "They had a year and a half to resell the property before delivery."
She says securing a mortgage at this level of pricing is now close to impossible. "I bought two apartments with a group of seven friends," says Francoise Harris, an investor in the Marina Blue building on Abu Dhabi's Reem Island. "The last instalment of investors is due on completion, which according to the company is December 31. But the building will obviously not be ready by that time. We only want to pay on handover."
Developers say many investors are simply seeking excuses to either delay or avoid making their final payment, either because they do not have the necessary funds or because their homes are now worth substantially less than the price they paid. "People are much more critical," says Markus Giebel, the chief executive of Deyaar Properties, Dubai's third-largest developer. "Sometimes they really look and try to find something wrong, which afterwards can be used against us in order to stall the last payment."
Deyaar's Citadel tower, an office high-rise building in Business Bay, which had a last instalment of 50 per cent due on handover, has faced problems with some owners during delivery. "We have no issues with about 50 per cent of the customers," says Mr Giebel. "But with the other 50 per cent, we have to negotiate." @Email:firstname.lastname@example.org