DUBAI – The UK Daily Telegraph has a revealing story about the state of the property market in the UAE.
The newspaper reports that an 800-strong group of mainly UK expat investors, from individuals who put deposits on holiday flats to property brokers, claim hundreds of millions of pounds is at risk.
Work has slowed or stopped on swathes of building sites, including on a second "Palm Island". The city was planning a series of artificial peninsulas in the shape of palm trees packed with seafront holiday villas, but only one is finished.
Of all the world's property crashes, says the Telegraph, Dubai's has been among the most spectacular.
According to an estimate from Morgan Stanley, projects worth £165 billion have been delayed or cancelled across the United Arab Emirates.
Prices in Dubai have fallen by more than 40 per cent since September.
As prices soared, many investors bought off-plan, either because it was cheaper, in the case of small-time buyers looking for a home in the sun, or because they could "flip" or sell on for a quick profit without ever having to pay the full value.
Investors on the end of a chain of "flippers" have been hit particularly hard as prices fell while building was put on hold. But even those who bought from developers now face the dilemma of whether to keep paying or cut their losses.
The situation has been made worse by local authorities which are revising rules on repaying money for property bought "off-plan" which could mean investors cannot get their full investment back.
The Dubai Real Estate Regulatory Authority (RERA) has drafted new rules under which investors who pull out of contracts are refunded on a sliding scale, depending on how much has been built.
But developers are still entitled to 30 per cent of the money paid even if nothing has been built at all, giving them an incentive to claim projects are still viable.
RERA is preparing further revisions. It may also order 27 projects to be cancelled with full refunds – if the money is left.
Alexis Waller, a lawyer at the Dubai offices of legal firm Clyde and Co, told the Telegraph that many investors signed contracts which did not specify what would be built when.
"Investors signed up to payment schedules that were in no way linked to milestones," she said. "That's how the market worked here, and purchasers didn't query it because they were making so much money from property.
“It's become an issue because they are no longer making money."
Source: Daily Telegraph, London
Dubai property crash stuns holiday home investors-26 May, 2009
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