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Developer demanding £££££££s

Discussion in 'Dubai property' started by laguna33p, Nov 17, 2008.

  1. laguna33p

    laguna33p Member

    Received this email.....I have paid 85%....is it illegal

    RE: Prodigy 1/Jumeirah Executive, Jumeirah Village South

    Given the current economic climate and the impact on the property sector, including MiNC, I am writing to provide an update on our strategy and plans going forward in relation to the Prodigy 1 building. The purpose of this letter is to highlight the issues we face in completing this building and proposed solutions. We need your assistance in achieving these plans.
    As you will be aware, we have been experiencing delays in completing this project. I would like to assure you that the successful completion of this project has been, and remains, our most critical business priority. We are absolutely committed to making sure we deliver on our promise. However, we have faced a number of challenges since the start of the project, and we are being further challenged by the fall-out from the economic crisis in the region. There follows a summary of the challenges and our proposal for overcoming these:
    • We launched the Prodigy 1 project in October 2006, following the purchase of land from Nakheel. Having been promised immediate hand-over of the land, Nakheel actually delivered the land for construction in May 2008. Even though the apartments in Prodigy 1 had substantially been sold, the delay in receiving the land from Nakheel had a significant negative impact on the project;
    • Construction prices doubled during the time we waited for the land to be handed over, with a significant negative effect on the viability of the project;
    • We also witnessed a doubling of construction-related professional fees and a large increase in government-imposed costs during this period;
    • The introduction of new regulations by the Government of Dubai, although welcome in concept, made it extremely difficult for us to proceed with the project. This was because our financial model was different to that imposed by the Government of Dubai; whereas we had envisaged funding the construction of Prodigy 1 with cash flow from the overall Prodigy project cash flow (six buildings), this was no longer allowed;
    • The arrival of the global financial crisis has had a severe impact on the monies MiNC has available to build Prodigy 1. We are no longer able to subsidise construction of the project; the project needs to be self-funded as originally intended;
    • Additionally, the liquidity squeeze in local banks has recently caused two of our local banks to withdraw project finance for Prodigy 1, having originally agreed to provide this funding.
    The following is the status of the project as a result of the above:
    • The vast majority of apartments in the project have been sold.
    • The project is no longer financially viable; costs have increased to the extent that MiNC would make a significant and material loss if it were to build this project. MiNC can no longer afford to subsidise this loss;
    • Construction had commenced on the project; however, progress has been halted, as the contractor has not been paid due to the withdrawal of project funding by the bank. The project has a severe cash flow shortage.
    In short the project has stalled and we do not see it progressing any further in the current economic climate unless we are able to inject cash in to this project as a matter of urgency. We are determined to see this project through to the finish despite these uncontrollable events.
    Our proposal
    In order to ensure that we are able to construct the Prodigy 1 building and deliver your unit to you, we need you to pay an additional AED 313,000 for your apartment. Given current trading conditions, we believe that this is the only viable option available. We will need all of this additional payment up-front in order to continue with construction. The other installments will remain as per the original schedule.
    Your new price would be AED 688,000. This equates to AED 1,000 per square foot.
    In exchange for this, we will be able to instruct our contractors to re-commence construction of this building immediately. Clearly this will be dependent on all buyers accepting this offer, otherwise your money will not be utilised.
    We recognise that our valued customers will not be pleased with an increase in the cost of the unit. We hope that some of your displeasure will be mitigated by the fact that the ultimate price you will have paid for your unit will ultimately be significantly below market value at time of completion.
    We estimate that your revised cost will be at least 25% below market value. We also believe that rental yields will remain firm at 8-10% of current values and much higher than this on purchase price.
    Should you agree to our proposal, we will of course increase our rental guarantee to 8% of your increased purchase price.
    Summary
    I would like to assure you that we have seriously considered every option to arrive at the proposal presented above, and that we sincerely regret the changes to our original agreement.
    The current economic climate and the impact on the property sector are certainly 'unique' and thus require 'unique' thinking, analysis and action. The proposal outlined above is something that MiNC would never consider under normal circumstances. Events outside of our control have forced us to make difficult decisions such as these. In light of the current market dynamics in Dubai, we believe that this is a positive step in achieving a successful completion of this project. We hope that you feel the same way, remaining enthusiastic and positive in achieving this goal with us.
    We sincerely apologise for the inconvenience this communication and subsequent actions required of you have caused.
    To reiterate my sentiments above, I and everyone at MiNC is absolutely committed to building Prodigy 1 so that we can deliver your unit no later than June 2010. We believe that our proposed course of action will ensure we meet this target. Failing this, we fear that the project will be suspended, possibly permanently.
    A sales representative from our office will be contacting you imminently to discuss this further and address any concerns you may have. In the meantime, if you have any questions in regard to the above, please do not hesitate to contact:
    Sales Customer Service
    Mr. Muawia Khalil | Tel: +971 50 453 8652 Ms. Pooja Lal | Tel: +971 50 658 7667
    If you agree to the proposal outlined above, could you please signify your acceptance by signing and dating the Appendix attached, returning it to this office by fax or scanned copy via email at your earliest possible convenience. I look forward to providing you more updates following the positive outcome of this proposal.

    Yours sincerely,
    Haroon Mahmood
    Chief Executive Officer, Dubai
     
  2. TommyC

    TommyC New Member

    Interesting stuff, no idea if it's legal or not. But it sounds like a bit of blackmailing, if you don't pay, what happens then? Full refund + 10% interest? Probably not considering they are out of cash... Interesting times!
     
  3. Datum1m

    Datum1m New Member

    It is only legal if you all agree to it
     
  4. djaan

    djaan New Member

    people, this can also happen to us, i have paid for one of my unit 40% and next installment is due and the construction as usuall not started so if i dont pay the Rera Law 13 partially applies and if i pay i fear i will recieve also the same email later, really confused and the worst in this email is that they need 313000 Dirham which is not in everybodys hand these days.we have to be very carefull

    djaan
     
  5. abudubai

    abudubai New Member

    Then, presumably, if you don't agree you will in effect be cancelling your contract. Developer can then take 30% of whatever you've paid to that point. Simple.
     
  6. Sally1980

    Sally1980 New Member

    Law number 21: to REALLY protect investors

    Guys this is going too far!!! If developers are allowed to ask more money after (almost) all payments are completed, then not speculators, but also end-users are swept out of the market. See my proposal (http://www.propertyforum.com/forum/dubai-property/10964-law-number-21-really-protect-investors.html) below:


    CALLING FOR A NEW LAW THAT REALLY PROTECTS THE INVESTORS!!!

    If the government is taking steps to protect the developers by putting exit barriers for investors, THEY SHOULD ALSO PROTECT THE INVESTORS / BUYERS BY ENFORCING DEVELOPERS TO CHANGE PAYMENTPLANS ACCORDING TO CONSTRUCTION.

    What happens at the moment is that, developers are assured of their 30%, if they develop or not and I have spoken to many investors complaining that the developer is in huge delay with construction but RERA is not able to do anything for them, in fact they are advised to just pay their installments or facing cancelation of their paper unit!!!

    Implementing this law will also be in line with the earlier introduced Escrow Account by the government for off-plan projects, that should lock the investors capital from the developer and release this in stages linked to construction progress.

    So why should developers still make their personally designed paymentplans according to their interests, that are often unrealizable. It is not unusuall to hear that an investor has paid 30% / 40% with the developer not even started the actual construction. I know developers introducing 2/2,5 year payment plans for 80 story buildings, and having delays for years with the construction not in sight, even after 4 years. In such cases the developers are abusing the lack of knowledge of the investors, or at least failing to give transparent and reliable paymentplans.


    I BLIEVE THAT THE INVESTORS INTEREST SHOULD ALSO BE HEARD AT THE LAND DEPARTMENT AND COVERED BY A NEW LAW!!!


    Share your opinion...

    Thanks,

    Sally
     
  7. Datum1m

    Datum1m New Member


    Saying No will not affect the contract which has been entered into by both parties. If the work as not yet started the Developer could have shot himself in the foot, because this letter would give you more than enough grounds to ask for your money back in full. However if the work has started, then all investors money is at risk, because the Developer is admitting that he is insolvent. Someone needs to go to site with the Developer and see how for the work has progressed. If the Developer has only got is site establishment on site and know contractor, then he will not have been able to claim much against the Escrow account. So you need to find out how far the build as progressed since May.

    I also find it hard to believe that the Developer did not enter into a fixed price contract with his Builder; therefore he would have known his financial position upon signing the contract with the Builder, back in May.

    I feel any arrangement you may consider entering into with the Developer should be done on a open book basis and the Developer needs to show that he his now Developing this out at is own cost and not making a profit from any investors.

    I was a builder and Developer back in the UK, so I know a little about how these things work.

    Best Regards

    Nigel
     
  8. georgihh

    georgihh New Member

    Don’t pay them

    If you pay them now you don’t know if they are going to ask for more after one year.
    Just ask for your money back considering this letter and tell them to find somebody else.
    Once you start paying more you are in trouble.
    They might be able to sell for 1000DHS but this becomes like a fish market.
    If you really like the project and you like your developer – don’t pay them
     
  9. kamadenu

    kamadenu New Member

    why cant we protest for making payment in relation to construction progress. Any payment beyond 10% if construction has not started. I think investors beloning to any particular development should form a group and make a representation. Individuals voice will never be heard.
     
  10. Datum1m

    Datum1m New Member

    I went to see my Solicitor yesterday who’s quite well connected and the Interpretation of Article No. (11) was at the request of the big two developers and was only changed to protect them from having to payout Millions of AED to us investors. It is now being sold to the public as a Law to protect the property market from speculators, when in reality the credit crunch will stop the flow of speculative investors without any special Law. All this Law does is fill the pockets of Developers, because they know we are no longer able to obtain finance to service our payment schedules.

    Basically any investor, who cannot continue with his contractual payment plan, will be at the total mercy of the Developer; however the Developer can no longer cancel the contract, this has to be done by the Land Department and they will not have enough staff to cope with the number of requests made by Developers, so it could be months before your contract is cancelled.

    However there are ways to slow the procedure down, you can write to RERA and request them to look at Developers payment plans that are not linked to actual work carried out on site, and ask them to write to the Developer requesting payment plans to be based on actual work carried out. This would work better if a number of investors group together from the same development. This will not fix the finance problems, but it will give you some breathing space, because a lot of developer’s payment schedules are well in front of actual work done. If you’re off plan purchase has not yet been registered with the Land Department, which is the duty of the Developer to sort out then you can write to the Land Department requesting this to be done, stating that you are concerned about making anymore payments against an unregistered property, which again may buy who some more time.

    Regards

    Nigel
     
  11. villabuyer

    villabuyer New Member

    This situation is very difficult. At least this developer has come forward and explained their constraints and difficulties.

    I've bought projects which developers just send notices to collect money, but don't give any updates on the project and don't even bother to respond to written requests for updates.

    However, still not a good situation to be in
     
  12. Gashead

    Gashead New Member

    Don't forget that steel prices and to a lesser extent concrete prices are in free fall at the moment, it's getting cheaper by the day to build in Dubai.

    There's actually too much there for me to pick holes in but here's one point to consider... if the price you will pay is 25% below market value how come only 'most' of the units have been sold?

    And one final point... sadly of little help to you... this is a company stating that they are insolvent. How can they continue to trade?
     
    Last edited: Nov 17, 2008
  13. daflanger

    daflanger New Member

    The situation is not as easy as you people think. I am an investor in Prodigy 5. I spoke to the developer and he relayed all his situation and how they hit a snag due to the following:

    1) Nakheel delivered the land in May 2008 - instead of May 2006!!! A whole two years later. Costs by then were very high and the project became and immediate loss
    2) In order to save the project they started a buy back. It worked for a while and they were prepared to offer the apartments at 1200 psf
    3) They also managed to get a fund from Tamweel to start the construction which they did
    4) The cost of opening Escrow hit them hard
    5) Then the crisis happened
    6) Tamweel pulled the plug on their funds
    7) The apartments they bought back have NO NEW BUYERS!!!

    So now they want to finish the project one way or another but they hit a major snag of no funding. This crisis killed their funding from Tamweel and killed their chances of selling the apartments they bought back so they are stuck

    They thought of offering investors to complete Prodigy 1 at the cost of an increase in the price cause they want to deliver it one way or another. But they told me they cannot have only half of the investors agreeing. All have to agree to avoid any problems amongst the investors.

    They told me they don't expect the investors to agree but atleast they are coming forward with something.. more like anything that can solve the situation

    Now they are on hold as prices of construction have gone down alot. So they are trying to push the contractor to lower his prices as well. But the only thing that could jump start the project again is funds! So they are looking towards the investors for help. They actually asked me if I have any other solutions

    I think for all Prodigy investors, if we can meet and try to work out a solution then the developer will be able to continue. Otherwise the project is doomed
     
  14. Mikal

    Mikal New Member

    Clearly the developer is not in a position to complete the project without further financial assistance - I would not make any additional contributions without an exchange for a position and say on the decisions of the development company.

    If they truly want to complete the project and they want more money to do this then they should not have a problem in giving the investor a greater say in the business, especially if they are coming back for extra money.

    Provisions should also be put in place to ensure that the company is not making any profits from this development (assuming it completes) any residual profits should be distributed back to the apartment holders.

    As far as the rental guaranteee is concerned - you guys need to wake up - they cant even build the building - nevermind rent the thing out. I would not factor in the rental guarantee in any decision i would make.
     
  15. laguna33p

    laguna33p Member

    Not getting a single penny from me, they must have other funds from which they will have to construct. I'm only prepared to accept this or a full refund + compensation.
     
    Last edited: Nov 18, 2008
  16. memo123

    memo123 Member

    This developer wants the cake and eat it all !
    Why cant they just refund the investors and cancel the project , give people their money plus interest accrued and get it over with.
     
  17. abudubai

    abudubai New Member

    Because this money has been pissed away on the stock market. There's nothing left.
     
  18. daflanger

    daflanger New Member

    Hi all,

    I am speaking to MINC almost everyday and they are committed to complete the project. They are trying everything in their power to complete. They want to try all alternatives whatever there is and where ever it is.

    Even though I am an investor in Prodigy, I have to say that the developer is not trying to hide but I guess they want to try every option. If Tamweel did not pull the plug on their financing and the resale market did not stall, the project would have been continued.

    The developer is calling out towards the investors for help in any way, so I think as investors rather than bad mouthing them and creating a problem for them and US in the market, we should meet with them and see what options are available.

    There could be options like:

    1) We finance the project at a permium and benefits. I mean we act as Tamweel of Amlak and monitor all the project and make sure it is completed. So we become the bank. One way or another we will make money from the project rather than lose all our money

    For example. Let us say MINC needs X amount of money over X amount of time. In return they would pay X amount of interest. So if we finance the project at a lower interest than Tamweel. Minc and complete the project and we will make money! Then Minc can sell the pending apartments that they bought back and make sure they break even. After that Minc can continue on the other projects

    2) We agree on the increase in prices by Minc but with certain conditions like:

    A) a 5 -7 years payment plan
    B) Very low maintenance fee
    C) Extra benefits.... what ever we can get out of it

    3) We wait and see if Tamweel or any other bank will refinance them and that got take forever given the current situation!

    So I ask if you all would agree for a meeting and then we can discuss these options. I think it is time the Investors started to take more control of their investments. This could be the beginning

    Let me know what you people think

    Daf
     
  19. laguna33p

    laguna33p Member

    Deflanger,
    Article published........

    Dubai developer demands up to 88% increase on price to pay construction costs | Dubai Property

    I have come across reports that Minc are now only asking for 200000aed or 30% (whichever the lowest). However, under no circumstance, will the majority of investors agree to a their demands for more funds, unless, as you mention, we become the banks.
    So far I'm only in contact with about 4 investors, where are the others...someone needs to come forward and become the spokesperson...we need to form a group.

    Abudubai,
    No, the money is safe according to Minc
     
  20. Mikal

    Mikal New Member

    Last I checked you need to have a banking licence to "Act as a bank" - if you loan funds to the developer and he does not fulfil his promises - i doubt you will get much protection under the law to re-coup anything back from them. You may or may not also be penalized for engaging in "acts of un-registered" financing.

    You may want to check this out with a legal representative before committing to this option.
     
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