x Abu Dhabi, UAEMonday 22 January 2018

Dubai push-starts stalled property

Tanmia project aims to solve legal problems of incomplete real estate developments and market properties to new buyers.

DUBAI // The Land Department hopes to have more than 100 stalled property developments finished by stepping in to solve legal problems, and promote them to possible buyers.

The initiative, called Tanmia ("development" in Arabic) won praise from some analysts for trying to tackle the thorny issue, although they questioned how big an effect it will have given the difficulties with stalled projects and the overall property market.

All projects, even those that are just a plot of land with no construction, will qualify for help, said Sultan Butti bin Mejren, the director general of the Land Department.

Tanmia will conduct technical and financial evaluations of the projects and try to resolve their legal disputes. It will then present them to interested developers for possible sale.

In the week and a half since the programme was announced, a handful of developers have signed up as possible buyers.

Four projects have been enrolled in Tanmia and several more developers have inquired about including theirs. About 100 are expected to be added by the end of next year and the programme will run for another few years beyond that.

"Every day, more than two or three investors or companies or government [entities] are coming to ask about the programme," said Majida Ali Rashed, the senior strategy adviser at the Land Department who is overseeing Tanmia.

Ian Albert, the regional director of Colliers International, called the initiative "a great concept", as the Land Department could act as an arbitration centre and clearing house for struggling developers.

"But I'm sure there are a number of hurdles," Mr Albert said.

Those include Tanmia having to look into the developer's obligations to each purchaser.

And if a new contractor was hired to finish building the project, Tanmia would need to secure warranties for already completed construction - something neither the former contractor nor the new one might be willing to give.

"Even with all the best will in the world the legal, financial, construction issues … will take a while to unwind, clarify and put back together for any new developer," Mr Albert said. "I don't think it's going to be a quick fix but it is setting up a platform."

Tanmia's evaluation of each project would have to satisfy the seller and buyer, said Nicholas Maclean, the managing director of CB Richard Ellis Middle East.

"I think they need to establish a very robust due-diligence process, which has to be agreed to by all parties," Mr Maclean said.

Even then buyers might demand too low a price for sellers, said Craig Plumb, the regional head of research for Jones Lang LaSalle.

"Most of the investors we deal with are very much focused on completed properties, so there would be limited interest in buying half-built projects unless it was at a very steep discount," Mr Plumb said. "Is that going to be attractive to the current owner?"

He also questioned the wisdom of completing more properties when so many in Dubai remained unsold or unoccupied. While it might get rid of unsightly, half-finished projects, the added supply could push prices down further.

Cancelling projects might be more effective, Mr Plumb said. "That would bring the market into equilibrium sooner and help prices rise sooner."

About 200 projects have been designated as cancelled, although the Real Estate Regulatory Authority, part of the Land Department, has declined to give specifics.

Land Department officials said they did not know the number of stalled projects.

Mr Maclean said oversupply might not be such a concern because developers registered with Tanmia as potential buyers would not have to purchase if they did not want to.

Tanmia would act as a catalyst, he said.