When you read this article, published by the New York Times and reprinted in newspapers all over the world ( I just saw it in a Japanese one in Tokyo under the head line: The Quick Sands of Dubai Real Estate) you come to realize that our relatively small problems in EC are on a global level irrelevant. Of course: Small investors and people with little money fell victim to EC and Ajman in general, a loss of 100 000 dhs is a big deal for them, but compared to the billions lost in Dubai it has no weight. This is why even a big press campaign wouldn't make any sense. The difference between Dubai and Ajman is, that the government in Dubai is dealing with these issues and is trying to set up the legal framework in a record time, just as the city was transformed in a record time. In Ajman I see nothing being done by the rulers, at least nothing visible. His Highness Sheikh Humaid bin Rashid Al-Nuaimi, toured Ajman Uptown just a few months back admiring the great progress which has been made, thus lying to himself and to everybody around. There is no progress and worse of all there is no demand for any of the Ajman projects.
THE QUICKSANDS OF DUBAI REAL ESTATE
On a sultry June evening in 2007, more than 100 people camped out at the offices of Emaar, a prestigious Dubai property developer, to ensure that they would land a coveted spot in a gleaming new skyscraper scheduled for opening this year near the Burj Khalifa, the world’s tallest building.
Today, the property, designed by the New York architect Frank Williams, who died this year, is, like a number of others around Dubai, little more than a rotting foundation. Its value has plunged by more than 40 percent since 2008, after the collapse of Dubai’s real estate boom.
“It’s really a disaster, the situation in Dubai,” said Silvia Turrin, a real estate agent who bought into the property, 29 Boulevard, and has been unable to get her money out. “It’s not like in Western countries — it’s very difficult to exit here if there’s a problem. And we’ll never get our money back, but now we’re stuck dealing with this hole.”
Dubai lured people to a gold rush in sought-after properties at the height of its real estate boom — including business and political leaders from Afghanistan who invested the deposits from Kabul Bank, one of the country’s largest. The near-collapse of the bank in September was largely a result.
At the time, few asked if there was a legal framework for resolving potential disputes. Now, with the glitter gone, interviews with investors, legal experts and real estate analysts here show that many who bought in are finding it hard to get out.
Despite the construction delay, Emaar is still holding the down payments of as much as 80 percent required to secure an apartment, Ms. Turrin and other property holders said. And Dubai’s opaque property laws have made it virtually impossible for those who bought in to walk away, even as interest accumulates on their construction loans.
In a statement, Emaar acknowledged that 29 Boulevard was still “under construction” but said that it upheld transparency standards and had “taken several proactive measures to address the concerns of investors on developments that are in the pipeline.”
It said those measures included the option of purchasing other completed properties. Investors, however, say the properties being offered are in some cases smaller, less attractive, and more highly priced than those they agreed to buy.
Emaar is not the only developer with similar problems. Scores of other buildings around Dubai are well past their delivery date, or have yet to be started. Apartment buyers who made down payments for property construction are unable to find out what is happening with their funds, these people said. Bank loans held on undelivered property often cannot be forfeited, and borrowers have had to pay higher interest rates even as banks have refused to let them walk away from the mortgage.
“The rules of the game are definitely opaque here,” said an investor who has bought several properties in Dubai and who insisted on anonymity because of talks with developers and regulators. “In the United States, I would know my legal position much more clearly and could take actions if necessary.”
Most developers have also thwarted the formation of owners’ associations that could take control of their building’s finances and ensure the transparent management of condo fees, which many owners say are used by developers to take in yet more money.
Dubai has compressed decades’ worth of real estate development into the last 15 years. But the legal framework for resolving property disputes, and the nature of the contracts themselves, are still as incomplete as many of the buildings around town, analysts said.
“Dubai has evolved rapidly in just a short time,” said Graham Coutts, the head of Middle East management services at Jones Lang LaSalle. “The legal system is evolving with it.”
Still, concerns about resolving disputes here are mounting, even as developers struggle to find foreign and domestic investors for what has now become one of the largest property overhangs in the world.
Commercial real estate vacancies in particular are still rising.
Although about 70 percent of empty lots from three years ago have been filled, the construction of new real estate since then has far outstripped the purchases, more than doubling the amount of vacant space available, said Timothy Trask, the director of corporate ratings at Standard & Poors in Dubai.
Dubai is not the first place where soaring ambitions have outpaced reality. Shanghai, Singapore and Hong Kong all suffered from overbuilding within relatively short time frames. But these places were able to curb their real estate overhangs by drastically reducing construction until demand picked up.
Building is continuing in Dubai, however, even though potential corporate tenants are showing little interest in developments like the Dubai Silicon Oasis or the Jumeirah Lake Towers, an 85-building development that looks like a Las Vegas-version of lower Manhattan planted on the fringes of the desert. Jones Lang LaSalle recently proposed that some buildings should simply be sealed for the next five years, until buyers return.
Even if investors eventually respond to slumping prices, they would still have to be wary of contracts and vigilant about how legal disputes in Dubai are resolved, said Ludmila Yamalova, a managing partner at the law firm HPL Plewka & Coll, who handles lawsuits for individual and commercial property investors.
She recently sued Damac Properties, one of Dubai’s biggest builders, on behalf of a German investor who claims that from 2006 onward he invested nearly $10 million in five off-plan properties that were not delivered on time. The investor, Lothar Hardt, has also claimed that the developer mismanaged escrow accounts related to the properties and that he lost money by signing contracts with retailers who planned to set up shop in the buildings.
Ms. Yamalova is now trying to bring suit in a court run by the Dubai International Financial Center, a government body set up to attract investors, which operates largely on British-based law and is independent of the opaque Dubai court system, where cases are conducted in Arabic and plaintiffs must go through local Emirati representatives.
Dubai’s real estate regulators have issued a flurry of rules since 2008 to clarify the situation and to comfort potential investors. But new rules sometimes contradict others issued just months earlier, often in ways that leave developers with the advantage and property buyers in a legal limbo, making many wary of ever investing in Dubai again, Ms. Yamalova said.
Mr. Coutts, the Jones Lang LaSalle executive, said that because Dubai grew so fast, the government was learning on the job. In more mature markets, “you had 200 years to develop a legal framework,” he said. “It’s now becoming clearer what kind of a legal framework is needed to regulate development here.”