27 Dubai projects may be cancelled this month

Posted on 12 May 2009 with no comments from readers

The Dubai Land Department is reviewing 27 real estate projects for possible cancellation by the end of the month, according to Gulf News.

This marks the start of an officially organized cull of real estate projects left ‘unviable’ after the boom crashed last September. Officials said the 27 projects are all third party projects and do not belong to the so-called master developers.

Law No 9 gives the Real Estate Regulatory Authority the power to cancel projects, or the developer can request cancellation if there are no investors or part payment. Rera can also cancel a project if enough off-plan investors complain.

Payments to defaulters

The new Law No9 awards refunds to investors on the basis of how much of the project has been completed, and developers will need to obtain a technical report from the Land Department to prove the building work has been done before they make refunds.

If the developer has finished 80 per cent of the project and the buyer defaults then the buyer gets no refund. For 60 per cent completion the developers can retain 40 per cent of the purchase price, and for less than 60 per cent they get 25 per cent. For off-plan schemes where no work has started, the defaulting buyer forfeits 30 per cent of the selling price.

But importantly if the project is cancelled by Rera then buyers get all their money back. Hence developers have a strong incentive towards organizing the voluntary liquidation of projects.

This law is to be clarified by new rules shortly. These might allow investors to apply directly to the Land Department to request cancellation rather than a court, and detail the procedures to be followed.

However, Rera has a long and hard road ahead to clear up the mess left behind by the collapse of the off-plan property boom in Dubai. This will take time and clearly investors are going to lose some, but not usually all, of their money.

Master-developers

The master-developers – principally Emaar, Dubai Properties and Nakheel – are being left to sort out their own projects. There have been no official announcements yet and investors will be watching with keen interest.

It is hard to generalize about what is a very diverse portfolio of property interests at various stages of completion and investor payments. But given the slump that has hit the Dubai property sector since the global financial crash last autumn the chances of this entire inventory being built is zero.

What looks far more likely is that these investors will be given options that depend on the stage of construction – shadowing the Rera approach – in the case of default. Or there may be more creative solutions offering investors who have paid for a larger unit credit towards a smaller one commensurate with their payments.

Only time will tell, but the more quickly this process is completed the better for the whole Dubai real estate sector. For only when the fall-out from the property crash is cleared away can enough transparency return to the market for price discovery and a larger volume of transactions.
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