First UAE developer goes bankrupt, others will follow
Posted on 24 November 2010 with 4 comments from readers
Al Murjan Real Estate, the owner of the White Bay development in Umm al-Quwain has become the first UAE developer to file for bankruptcy, according to The Financial Times.
The bankruptcy filing is likely to set a precedent for hundreds of stalled real estate projects across the Emirates as this type of proceeding may take years and delay the processes allowing the many thousands of individual investors to get their money back.
Stalling tactic
For if other developers decide to follow this approach then buyers of off-plan properties will have to chase their investments through a complex court process with an uncertain outcome.
The White Bay project, which includes a waterfront strip and two man-made islands, is a joint venture between Sheikh Abdullah bin Rashid Al Mualla, Umm al-Quwain’s deputy ruler, and Sheikh Tariq bin Faisal Al Qassimi of the Sharjah-based Emirates Investment Group which is also developing the Palazzo Versace in Dubai.
The Financial Times exclusive reports that Emirates Investment Group and Sunland from Australia have until recently been working on the project’s infrastructure. The developer has written to off-plan investors to say that ‘the owner has had a problem gaining government planning approvals’ and ‘that half the buyers have not maintained payments, making financing difficult’.
Global financial crisis
This does look like something of a model for the next stage in winding up the stalled real estate sector in the UAE, almost exactly two years since the global financial crisis wrecked credit lines for these projects and left them unfundable.
Smaller developers have been particularly hard hit, although the involvement of governments and the ruling families has not brought a much better outcome for investors as noted in the White Bay scheme.
The Washington-based Institute of International Finance thinks the percentage of bad loans on the book’s of UAE banks may rise to 10 per cent from 4.8 per cent last year. It reckons around 25 per cent of total loans are for construction and real estate purposes. Usually real estate crashes later turn into banking crises, although the UAE banks are well capitalized.
4 Comments posted by readers:
Whatever you do for the next decade, don’t invest in UAE Real Estate…. Don’t Invest, don’t invest, don’t invest!
This is misinformation and propaganda at its best. Not a single investor has EVER gotten their money back from a failed developer or project. There IS NO process for an investor to get his money back .
This is hardly the first ‘failed’ developer in the UAE, rather the first one to officially declare bankruptcy instead of just pocketing the remaining deposits and fleeing back to another country.
Having a developer in a court (even one horribly biased against investors) is better than the alternative, which normally is wondering who has an investors money, where they are, and in most cases, even who they really are.
Some people have not been able to get funds returned, but you should be honest and admit some have. For example, some Sama Dubai investors received over 90% of their deposits back, amounting to a loss of less than 1% of the property value.
Peter,
You are actually wrong, most Sama dubai (formerly known as ‘Dubai Properties’) investors, specifically in the ‘indefinitely postponed’ lagoons project, received refund credits that they could either sell or use towards purchase of other sama properties, most of which were vastly more expensive and out of reach of most investors. As most people have lost interest in Dubai as a place to live, if you tried to sell the refund credit people generally received 25% to 50% of the value of the credit, meaning a loss of 50-75% of the value of their investment.