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Property Weekly

Grace Paras
Heading the Ajman Real Estate Regulatory Agency is no mean task for Omar Al Barguthi as he has to steer the fledgling property market back to calmer waters.
Ajman Real Estate Regulatory Agency's role in the market

Nicole Walter, Features Editor
Published: July 27, 2009, 12:38

Regulatory Agency (ARRA) came into being, the property market in the tiny northern emirate tended to resemble something of a free-for-all.

That the cost of entry for an untested developer to launch a project and then start selling it was ridiculously low, had a lot to do with it. Many came into the Ajman property market believing that they could reprise the quick bucks scenario that existed in the early days of Dubai’s property boom.

Property buyers, many who could not afford to get onto the Dubai property bandwagon, were quick to do so when developers starting pumping up Ajman as the next big thing. Prices did rise and a lot of properties were sold. Then, the reality that it was all built on a less than steady foundation started to emerge.

It is now ARRA’s task to steer the fledgling Ajman property market back to calmer waters. As its director-general, Omar Al Barguthi has an onerous task on hand. In the first few months, Al Barguthi’s directives clearly indicate that ARRA means business in cleaning up the marketplace. Deadlines have been set for developers who intend to get on with their projects to register themselves with ARRA, and more initiatives should be revealed soon enough. In conversation with Property, Al Barguthi sets out clearly on what he intends to do.

As with every other property market, Ajman has also been impacted by the downturn. But, how bad has the impact been?

Let’s be fair. People are dramatising the situation. The media loves scandals now, in the same way it went into full gear reporting the most extravagant real estate projects during the boom.

Ajman’s objective was never to go the ‘-est’ way (in reference to the wider UAE property market’s penchant for
superlatives). You will not find these kinds of developments here. The worst thing would be to believe that this is a crisis when it is not.

We needed a healthy correction and all agree that this so-called crisis will end the day banks decide to finance loans for real estate again. I am quite happy to see banks hanging on until prices are back to a reasonable level.

Fair enough, but one cannot ignore the fact that lack of finance has set back many developers’ plans?

Of course not. People should jump to take the blame instead of hiding and trying to blame someone else. It’s like, if you do not admit to having a disease, ignore the pain and cover up the symptoms, it gets to a point where one cannot ignore it any longer and then it is more difficult to treat.

The best way to go about it is to say ‘Yes, I am not feeling well’. And do not let things become more complicated as you go along. We are happy things are taking the correctional path. If that means slowing down the work, let it be. If it means cancelling some of the projects, by all means let us do it. I am not going to hide behind my finger here saying, ‘There is no problem, everything is up to speed’.

After all, our role as a government is to ease things for people who are living here and not make it more complicated.

So why is it that Ajman did not react when speculation was seemingly spinning out of control?

Ajman is just another geographical location worldwide where speculators have abused the opportunities they had. We were virgin territories and, yes, most of the concerns have been raised a little later than they should have.

Similar dilemmas happened in the UK in the mid-80s and they’ll continue to happen, and not because we had no regulators. France, for example, has the oldest regulations in regard to real estate, so does Germany and the US, and it still happened.

Human greed always finds a way to beat the system. I am not saying it would be possible to go back to the way things were. Now that we have set up regulatory authorities in Dubai, Ajman and Ras Al Khaimah, others like Sharjah will follow. We’re part of the UAE and would be happy to be part of a federal agency, to serve Ajman and beyond if required. This is a positive learning experience for us.

So the lesson for speculators and developers mismanaging their businesses and finances is to live with the consequences?

Yes, absolutely. Let it be. Global corporations are filing for bankruptcy. How would we as individuals afford to live if we had continued the dilemma of previous years?

Yes, I have also been affected because, as an investor, I have probably lost (capital). But, the pressure on the majority ¬— let’s say 90 per cent of society who do not even own property but rents — is easing. The landlord’s income on a property may drop from 20 to 8 per cent, but he is still making money. Those who dramatise the correction are very shortsighted and deserve what they go through.

Emirates Lakes Towers, Humaid and Emirates City… the list goes on and there are hundreds of towers there that are going to be consolidated or cancelled. And what about Marmooka City?

We did contribute to the settlement that was worked out between Marmooka’s master-developer and sub-developers. We have yet to find out how the developers are dealing with their investors. So far, things have been positive and no complaints have been received. It was a pretty fair deal for most of the parties.

Some of the others are under revision. We are evaluating how well they can proceed. If the situation dictates that a merger should take place, then by all means, why not? If a merger helps unit owners, the developer and master-developer, why not?

How many of these projects are heading for the scrap heap?

If I say that ‘X’ per cent of the projects will go ahead now, it is not going to help anyone. Developers will simply wonder where they fall and unit buyers will be thinking ‘I hope they cancel mine because I cannot pay’.

We evaluate project by project and try and help before we decide it cannot go on. Some developers are on a temporary registration to see whether they are able to meet the criteria – like a probationary period.

So, not all developers are registered as of yet?

There are three categories of developers: some did not appear for registration, some have not completed all documentation formalities, and some have not registered.

Can you name those who are not going ahead with projects?

Naming is not really possible, not because I don’t wish to, but I cannot decide that they have run away. There are cases regarding developers in the papers who are in touch with us wanting to come back and complete the projects. I don’t yet know the outcome.

A special committee is looking after those projects and will decide whether or not reviving those projects is feasible. We’re trying to re-group and see how we can support every developer on an individual basis and reassure them that we’re not here to cripple them. That’s what we’ve done so far.
No developer has requested a cancellation?

We haven’t had any case yet of developers coming forward with a statement that they want to cancel. Developers usually avoid that as it is dictated by whether they have already collected money, given it back, etc. Some of them did come forward to indicate they would like to merge projects.

Sorting things out takes time and delays are a thorny issue. How much is acceptable?

We are very keen to try and sort out things to the best interest of both parties. If the buyer just wants to get out, we refer back to the contracts and most of them say that the developer has the right to delay and prolong. What we do is work out a new deadline that is acceptable to both and also feasible. We pin the developer down to it and we structure a payment plan linked to construction for this customer.

Shouldn’t all payments be legally linked to construction?

They will be, but not immediately. It’s a very tricky situation. Our objective is to be fair and a little bit more flexible, taking into account the global economic recession.

We have to distinguish honest developers from those who are not. So, we cannot give buyers a blanket right to claim, as if all developers were equal, through the issuance of the law.

Biting the bullet is a very important step right now for both sides. How much are you willing to lose if you want to exit a contractual obligation? It is not as easy as to just stop payments and get your money back. In the real world nowadays, it does not happen.

Are you developing laws similar to those that Dubai has?

I have been avoiding issuing laws, as I want to be flexible and reasonable with both parties. We want to consider the circumstance in each and every case and see how best we can serve as a regulator. We tell a customer to hold on and let the developer do what he needs to do if he is sincere and hard-working.

If the developer is unable to carry out his obligations, we advise the customer on what he should or can do. But, we should also know our limits as ARRA. There will be cases that have to go through normal legal channels and I cannot stop anyone trying to take that route.

What about those developers who have been systematically delaying projects?

My guess is that a good chunk has been delayed because they did not really know what it takes to be a developer. They felt it was easy and jumped onto the boat without wearing a life jacket. When the boat started shaking, some even decided to jump — those who have fled the country.

The few who are familiar with the ins and outs of the business know the waves will start dying down soon, and conditions will improve.

Those who are inexperienced are the ones who are now raising all these question marks. And I am not talking about Ajman. The real estate boom worldwide saw speculators messing up the market, thinking they could become rich and then discovered that it is not that easy.

So, infrastructure issues have nothing to do with the delays?

It is an excuse. What it really comes down to is that some developers gave the first down payment for the land to master-developers and only later discovered that they are unable to continue payments because investors stopped paying them against their units.

So then they gave power as one of the reasons to end-users who were asking why construction had not yet begun. There are other sources of alternative power generation. Developers should use them in their designs, keeping in mind their profit margins, should things go back on track.

Will we see more ‘green’ building developments in Ajman?

We do not have regulations yet, but we do have a campaign for going green and it should become compulsory in the near future.