Emirates City Forum

Ajman’s towers leave legacy of despair
By Simeon Kerr in Dubai
Published: August 4 2010 17:33 | Last updated: August 4 2010 17:33
The dense banks of half-constructed towers in Ajman’s Emirates City loom over the horizon from miles away, testament to the distance travelled by Dubai’s property woes.

Envisioned as a community of about 90 towers, the dozen or so skeleton structures stand dormant. Ajman, one of the smaller members of the United Arab Emirates, followed Dubai’s lead and established itself as a budget version of the city-state’s deluxe real estate sector.

Emirates City, which lies about 50km from central Dubai, could have become another thriving dormitory for the booming Dubai economy. But it has fallen victim to the problems of its neighbour’s property sector: excessive speculation turning to despair as developers scrabble for cash amid a collapsing market.

Hundreds of investors are considering pursuing legal action against developers at the Emirates City complex.

An opinion poll on the most popular online forum dedicated to Emirates City suggests that two-thirds of buyers are stopping payments, with a fifth continuing to pay developers and 9 per cent having rescheduled instalments. Only 3 per cent say they are pursuing legal action, but some of those are winning – and recovering cash.

Lawyers have won final judgments against a few other developers in Ajman and, crucially, recovered funds by placing court orders against these developers’ assets.

Dave, a British national who works in training, in 2008 bought three units in Goldcrest Dreams 4, which is being developed by StarGiga, a joint venture with ETA Star, an established Dubai conglomerate.

With contracts delivered late and no sign of construction progress, he tried to negotiate last August, accepting that he would lose his deposit if he could exit. But the developer refused, claiming force majeure owing to the lack of infrastructure from the master developer.

Dave contacted the Ajman Real Estate Regulatory Agency, the regulator formed in 2008, which issued a letter allowing him to pursue legal action.

The court last month issued him with a judgment for about Dh250,000 ($68,000) plus a 5 per cent compensation after only two weeks, which is considered a speedy judicial resolution in the UAE. The developer, however, is appealing.

StarGiga executives declined to comment when contacted, saying the company’s chairman was the only official cleared to speak. He was unavailable for comment.

By winning a judgment, investors become secured creditors against their developer, rising up the chain of those owed money in case of bankruptcy, says Sunil Thacker, partner at Dubai-based The Legal Group. But concerns are growing that some of these developers may not have the cash available to meet the proceeds of court judgments.

“Those who have not filed may find it difficult to recover monies at a later stage as a developer may run out of funds or declare bankruptcy,” said Mr Thacker.

Omar al-Barguthi, director-general of ARRA, says its mission is to seek reconciliation where possible. “We try to stand on mutual ground and pass judgments or guidance towards people who have been victims of their own decisions and ignorance,” he says.

Most developers are acting in good faith, willing to proceed with construction as long as they have enough buyers who want to pay and receive their units.

Many investors, he adds, were speculators seeking a quick profit and have no intention of paying for properties that have suffered price corrections of up to 60 per cent.

“Our priority is to support developers over individual investors as one developer can cause a few hundred investors to collapse with him,” he says.

The agency has been working with developers, such as Paradise Lakes and Ajman Uptown, to trim their property plans, consolidating units from multiple buildings into a smaller number of towers.

The government has also bought back some private sector developments, such as Helou Downtown, and will proceed according to demand, Mr Barguthi adds.

Ajman aims to limit new units to 25,000-30,000 by the end of 2015, a number that would have been 10 times that amount had all the planned freehold projects proceeded, says Mr Barguthi. But he concedes that there are some “unco-operative developers”.

The agency is also involved with other initiatives. This month, the government is expected to issue a new law regulating construction, cancellation and collection of funds, and defining a formula for cancellation of projects depending on the level of construction and monies collected.

Ajman is also preparing a dispute resolution committee that could act as a de facto arbitration body once federal approval is finalised.

In the meantime, lawyers are waiting in the wings, but investors have to launch claims individually, raising court costs.

Saif al-Shamsi, partner at TLG, laments the lack of class-action procedures under UAE law. “There are several purchasers who are interested in filing cases collectively and we hope that the judiciary opens the door for this representation,” he says.

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