Dubai/abu dhabi - bubble burst

[sonofthedesert]

They are somethings the government can do to restore confidence in the market.
1) Stop the nonsense of reviewing the residence visa, it was offered as a selling point, why is it changing
2) Discourage developers from launching new off plan projects. Believe it or not some are still launching projects to this day.
3) They should regulate and give and control the supply through regulation (ie) there should be a waiting list, planning permission ect...
4) They should shore up banks who should be willing to lend again
5) Banks should start credit rating, that way they can lower the LTV ratios
6) They should seriously consider the GCC currency and start talking again about it, just the talk alone of this was the result of the hedge funds pouring billions of dollars into the emirates in the first place.
I am confident that in 1 years time after the dust settles the price of oil will go up and thats why Dubai, will not be a Singapore or Hong Kong for that reason.
Abu Dhabi must realise that its sucess also hinges on the sucess of Dubai. If Dubai tanks so does the rest of the emirates.
Last but not least developers should take advantage of the lower commodity prices of steel, cement, buy in bulk and begin constructing, if they wait for better times, those will not come.
We investors want to see results at the end of the day

I agree with your suggestions, but I disagree with your point about the relationship between Abu Dhabi and Dubai. People do not come to Dubai for oil. The major industries they are developing are finance, banking, tourism and real estate (ironically). While Dubai does have the 'brand', it doesn't have any oil left. That is why all of this - out of control - development started in the first place. Abu Dhabi has ALL of the oil in this country (>90%) and will be the major player in this country in the years to come. Dubai is ultimately going to get bought up by AD and essentially rely on hand outs to keep going. That is common knowledge now in the UAE business community. Nevertheless, I think the gradual fusion and mutual interdependence of the two will be a good thing for the future of this country.

 

[Saeid]

I think the gradual fusion and mutual interdependence of the two will be a good thing for the future of this country.

I think the scenario you are talking about is only one of the things that might happen in the future.
I think what a lot of people are forgetting is that Dubai was doing OK prior to this bust . And once things find their equilibrium, Dubai will be Ok again.
But if as you say there will be a greater interdependence between DXB and AD, it will certainly be a good thing for Dubai, as it will teach them humility. But on the other hand AD will not fit through the door with their enlarged egos.

 

[psychiatrist]

No the point i am making is everyone is talking about Abu-Dhabi saving the day ( ie providing more liquidity)
It could decide to be more conservative and let the Dubai scene be in free fall next year.
But the central govt IMHO should shore up the banks and provide more liquidity specifically for the property market of the whole U.A.E.
There is naturally some bit of jossling amoung the individual emirates,and some see this scenario as a chance for Abu-Dhabi to establish dominance, again IMHO dubai remains a profitable longterm viable financial hub, and is worth saving.

 

[Ayyan]

I heard last night that Burj Dubai was bought from Emmar by Abu Dhabi for, ready for this?


1 DH.
Any one heard of this?
What you're saying makes good sense.

i think its very higly unlikely there are all sorts of rumours dubai have sold this and that but nothing of the sort has happned

burj dubai is now 800m tall and has not stopped construction

 

[financier888]

Just a general statement - mainly for new buyers.

I see a lot of posts saying that it is Speculators that have caused the fall of the market. Sitting overseas, your guess is as good as mine but to an extent, speculators create buzz, they bring liquidity and so on....

What has been a big letdown is that the Regulators - who should be the guardian of the market- are woefully absent....and they haven't said or done anything that would increase the confidence of a single investor by an iota. Investors have always felt that in your market - developer's have the upper hand - events, pronouncements, re-written rules of recent weeks have simply worked to strengthen that. Visit the regulators website, and there are ads for developers. Imagine going to the Fed Reserve website and seeing individual Bank and brokerage ads.

China has done a far better job - having had no concept of individual property, capital markets etc... in a short time.

I myself have invested in Ajman... it has gotten to the point where in good conscience, I cannot even bring myself to resell my off plan property - unless it is to someone who knows what they are doing. Probably can act on my conscience - since there are no buyers anyway.

1) My contract says that if the developer delays contracted delivery by 2 years... I am entitled to a full refund.
2) It also says, that I can trigger a buyer default - and get a refund less 30% admin fees.

My point is - with the absence of a regulator, or a delinquent one... I have no faith that any developer can withstand the equivalent of a "run on the bank".... in either of the two scenarios.

As a result, that's exactly what I am planning to do. Forfeit an AED 400,000 paper gain, and forfeit 30% of the amounts already paid. Better to cut my losses since there is absolutely no one watching the developer. Those holding on, are betting on the developer doing on the right thing, and to manage smartly the vast sums that they've already collected in pre-sales. These developers are the same guys, who advertised milestone payments, and presented a contract very late...that was calendar based. I am lucky to have had a refund clause!

I would hold onto it if the rules / oversight regime was transparent. 3M+ sq feet and for 9+ months the developer's have shifted sand around....with complete impunity.

Also, for those who think - that the jurisdictions reputation is at stake, and they could not leave ghost towns lying around etc... maybe so. However, that's exactly what people said about Iceland, Russia in the 90's and so on. For instance, a DXB developer announced a $20B project in Libya...whose '06 GDP was $46B. Have 3 projects like that in various states of disarray in Libya ...and what can anyone do. Any savior, would redictate terms - take it or leave it.

OK in the UAE's case, everyone can look to AD for help but they'll pick and choose and extract heavy concessions.

No country will go out of business.... but for anyone looking to invest, be very careful what you buy, price... and if you have to make a mistake, buy something that is already there - at least you can live in it. If you wait, maybe the regulations will get realigned with realty...and bring some confidence back.

As an aside - I feel like I am caught up in an episode of the "Twilight Zone"....since post dated cheques keep forcing me to pay for a project that has Zero construction. Can't wake up from a bad dream. Just to put a stop on the cheques, I need to engage lawyers etc... not a trivial stuff/expenses.

Thanks for hearing me out...good luck.

You make many good points... In regard to your 'postdated checks' if the project is in Dubai and being that they have changed the law whereupon the developer cannot take more than 20% UNTIL construction starts - you may have easier and proper legal grounds to DEMAND the checks be returned. - pursuant to the new regulations.. If the PDC's are for Ajman - well, that;s a different story however, if it is an Ajman project and nothing has happened (construction) in almost a year - I'd still puruse going to an atty, file the paperwork with the bank and push to stop the checks... If the bank that you issued the checks is in Dubai - under the present circumstances, it may be easier than before. I would also go to the bank and make an appointment to see a director - and tell him that you think the developer may defualt and may be a 'flight -risk' and in this case, they may allow you to stop the checks or simply close the account - you would of course, have to notify the developer and tell them that the account is closed....

just a thought - good luck

 

[Ajmanprop]

Financier888 - Appreciate the input. Here's where I am. The project itself is in Ajman. Cheques are issued via a Dubai Bank.

I have found a Dubai law firm that is working on this. They seem credible.

Ajman is in the process of adopting some new laws - essentially modelled around Dubai's - and the lawyer is hopeful that based on the new laws I'll have some grounds to ask for payments to be stopped, at least until construction starts. In addition, since the original developer ads etc. specified a milestone payment, which was then not included in the contract, we may have some grounds for a dispute. Having said that, the law firm has been unable to get a hold of the new laws - since they are not ready for official release .... so essentially, I am on hold. I'm not holding out much hope - since the wording of the new law - gives each developer "reasonable" time to adhere to it.

Even if Ajman gets up to Dubai standards overnight - based on how much impunity the developers operate with in Dubai, I don't see any of them breaking into a sweat.

A Feb payment is coming due - which I am more or less resigned to have to pay.

By the way, I was told by the lawyers - that closing an account where there are outstanding cheques issued, is also technically illegal. I may have to notify the developer to not cash any more cheques since the account will be closed....and actually close the account. Oh well....

 

[financier888]

Financier888 - Appreciate the input. Here's where I am. The project itself is in Ajman. Cheques are issued via a Dubai Bank.

I have found a Dubai law firm that is working on this. They seem credible.

Ajman is in the process of adopting some new laws - essentially modelled around Dubai's - and the lawyer is hopeful that based on the new laws I'll have some grounds to ask for payments to be stopped, at least until construction starts. In addition, since the original developer ads etc. specified a milestone payment, which was then not included in the contract, we may have some grounds for a dispute. Having said that, the law firm has been unable to get a hold of the new laws - since they are not ready for official release .... so essentially, I am on hold. I'm not holding out much hope - since the wording of the new law - gives each developer "reasonable" time to adhere to it.

Even if Ajman gets up to Dubai standards overnight - based on how much impunity the developers operate with in Dubai, I don't see any of them breaking into a sweat.

A Feb payment is coming due - which I am more or less resigned to have to pay.

By the way, I was told by the lawyers - that closing an account where there are outstanding cheques issued, is also technically illegal. I may have to notify the developer to not cash any more cheques since the account will be closed....and actually close the account. Oh well....

If you can send the develoepr a certified letter informing them that you have closed the acct - you're covered. Can you please provide me more details on this 'milestone' payment? I've never heard of this before.. But as you suggest- the developer imposed this demand for payment that is NOT included in your original agreement - you most certainly have grounds for a dispute if not a total cancellation with a demand for a FULL refund!!

I do realize that there is time lag between the passage of a law / decree from Ajman and the time it gets published. To buy time - BEFORE you make the next payment - I would have the lawyer send them a letter requesting the following -
1) an explanation for the assessment of this 'milestone' payment as it was not part of the original terms and conditions, 2) a request of there proposed plans for an escrow account - 3) and DETAILS on the plans for construction with a timeline 4) the SPA

I'd have the attorney state that you wish to proceed in good faith but due to changes in the laws governing devleopers in Ajman as well as concerns with developers defualting in light of the economic downturn you need this info - which is not unreasonable. You are simply asking for 'transaprancy' - I would also ask the atty to include a request that the developer 'cease and desist' from depositing anymore of your checks until such time they have provided you with the information that you have requested.

Not sure what law firm you are using - but one that has some clout with locals in ajman would be helpful. This impostition of this 'milestone' payment sounds like grounds to cancel the contract and demand a full refund. ( a tort action) - I still think that you can get the bank to agree to close your account. Any judge, based on the terms of your contract would HAVE TO AGREE. the only hitch is - it sounds like you paid it already and the judge might rule that being that you paid it - you agreed. (defacto)

My concern is, by the time that Ajman gets their version of RERA together - the developer may crash and run and your funds will be lost... ALSO - lets assume that Ajman does enact the RERA types of laws for for escrow - and developers up there are now obliged to deposit ALL the funds they have already collected for the projects - less their expenditures - this will drag on for months before they are accountable - and many wont be able to comply as they have spent the funds collected and used it to purchase other plots!! You may very well see a bunch of developers, folding their tent and making they way to the airport....

good luck and I hope you have a good atty

 

[Ajmanprop]

Financier 888:
Thanks again. Maybe I need to clarify a bit better -

My developer is a company called Sweethomes - project is Ajman Uptown. They had ads and press releases everywhere (Gulf News, Khaleej Times),advertising a milestone payment plan - ie - pay 50% in installments until completion, 25% on delivery, 25% thereafter. Ajman's first villa project - 3.5M sq feet under development.

Based on the advertised scheme, and being none the wiser to the fact that the loopholes in the law there are wider than the English Chunnel....we put in a booking deposit - of 5%, it wasn't until another 20% was paid, that the contract showed up....with no mention of the above payment scheme - just calendar based payments.

Of course, we asked when the contract showed up, but by then it was already a case of take it or leave it. It was as much our fault for not doing the due diligence, as buyers we never expected laws to be so lax.

I've since understood, that this bait and switch practice in terms is widespread by many UAE developers. Get the booking in, don't produce the contract till you've paid 20%, and then write it as you see fit.

Oh well... the only protection that is explicit within my contract - is that by 2012, if the project is not delivered, I get my money back with interest. That's assuming, that there is anyone left standing there... and that they are still solvent.

I think the seatbelt laws in Ajman are probably stricter, than the laws governing developers.

Law firm is Habib Al Mulla.

Regards

 

[Saeid]

Financier 888:
Thanks again. Maybe I need to clarify a bit better -

My developer is a company called Sweethomes - project is Ajman Uptown. They had ads and press releases everywhere (Gulf News, Khaleej Times),advertising a milestone payment plan - ie - pay 50% in installments until completion, 25% on delivery, 25% thereafter. Ajman's first villa project - 3.5M sq feet under development.

That really bites! I'm very sorry to hear about your situation. Back in the days (4 months ago) when it was a seller's market, you could walk into the Investment Office of Ajman government and you'd be lucky if you could sit with a sales guy. That's why many people fell into the trap of signing and paying deposites without seeing the contract first.

Now ofcourse it's different. I just had an email from a sales person trying to flog off a studio in horizon Towers for 360 DHS/SQF. But I think the prices are gonna come down to about 250 DHS/SQF in a couple of months.

Saeid

 

[Investoman_uae]

Considering that Dubai prices are around 1000/sqft.... i would say Ajman prices would be around 500 - 600/sqft..... anythin above 600 has to be of very high quality perhaps near the sea somewhere.

This is my feeling. Once those projects on Emirates Road are close to completion or are completed... i would say they would be between 600 - 650/sqft... because demand is there and with dubai still being expensive and people cant buy. .. . its now a lettings market.

Inv.

 

[Hussein Awadh]

Crisis? What Crisis?

Who said the market is down? Banks are not lending. People are running off. What will happen to the market?

1) People will get desperate to sell their properties, at any price so long as they don't have to continue payments (Or at least not at a loss. Even break even sounds good.)

2) Developers will have to provide special offers on prices and payment plans to beat the 2nd Market in this current crisis. (No more 80-90% Finance)

3) Consumers number will decrease, therefore; decreasing demand, decreasing prices.

Let's face it, it's not exactly a financial crisis. One peoples misery is anothers advantage. So why not TAKE that advantage and use it!!! Consumers now have the power to negotiate payment terms, prices, contracts etc! Mind you, this is not for mortgages, since it's hard to get the finance, but for cash buyers who don't know what to do anymore!

So the Sale-Re-sale market is down. What does that mean? Not so many people are buying, so what other options do they have? Rent is now the most possible and probable solution for those who can't afford to buy without finance. Who said rental prices are dropping? If the demand for rent increases doesn't that mean the prices will rise??

Yes it's highly possible the rent prices will drop down and sink within the next six months since a whole load of new property apartments will be released, but what if all those properties aren't bought yet? What if people are holding on to them, leaving them empty, waiting for this whole thing to blow over?

The Answer is the Rental Market! Yes it's risky to buy an apartment and rent it out, but it's surely more secure than Re-sale? The most common term used in property investment is 'Long Term Investment' and part of what brought the market to such a halt is the so called 'short term investment'. A property should be used as a long term investment.

Can't find a tennant within the first 6 months? Tighten your belt a bit, at least you still have the property and it's still there waiting to be occupied. Everyone needs a place to live, be it rent or purchase, but surely a No Interest, No Mortgage, affordable/month, payment in the Rental sector sounds far more attractive than getting a loan of more than triple your budget every 6 months?

To sum it all up, the crises is only affecting the banking sectors and certain groups of peoples Job Security. The Properties will still be there, even if the developer shuts down.

Key-Ready Properties are the best option to buy now IMHO.

Just my 2 Fils ,

Cheers,

Hussein Awadh

 

[Ajmanprop]

Thank you all.

For now, playing the waiting game. The new Ajman laws haven't been officially issued yet.... so need to wait before we use the new "clauses" to justify stopping payments. The existing laws are not good enough. So it is a waiting game, while the clock keeps ticking and the Feb payment comes due.

Well, anyway - we live and learn...

 

[loai]

jvs

Hi

I have one property in JVS, in the lawns, bought at 800 sqft studio apt. any suggestions if i should hold this in current market scenario or sell it off

Any thoughts.

Regards
Khan

ouch

in JVS i think u need to hold on.... ur not going to lose, but it will be hard to sell now... hold on and wait.. things will stabilize soon....

 

[loai]

well said

Hussein Awadh[/QUOTE]

well said hussein...

 

[financier888]

gold fils

Who said the market is down? Banks are not lending. People are running off. What will happen to the market?

1) People will get desperate to sell their properties, at any price so long as they don't have to continue payments (Or at least not at a loss. Even break even sounds good.)

2) Developers will have to provide special offers on prices and payment plans to beat the 2nd Market in this current crisis. (No more 80-90% Finance)

3) Consumers number will decrease, therefore; decreasing demand, decreasing prices.

Let's face it, it's not exactly a financial crisis. One peoples misery is anothers advantage. So why not TAKE that advantage and use it!!! Consumers now have the power to negotiate payment terms, prices, contracts etc! Mind you, this is not for mortgages, since it's hard to get the finance, but for cash buyers who don't know what to do anymore!

So the Sale-Re-sale market is down. What does that mean? Not so many people are buying, so what other options do they have? Rent is now the most possible and probable solution for those who can't afford to buy without finance. Who said rental prices are dropping? If the demand for rent increases doesn't that mean the prices will rise??

Yes it's highly possible the rent prices will drop down and sink within the next six months since a whole load of new property apartments will be released, but what if all those properties aren't bought yet? What if people are holding on to them, leaving them empty, waiting for this whole thing to blow over?

The Answer is the Rental Market! Yes it's risky to buy an apartment and rent it out, but it's surely more secure than Re-sale? The most common term used in property investment is 'Long Term Investment' and part of what brought the market to such a halt is the so called 'short term investment'. A property should be used as a long term investment.

Can't find a tennant within the first 6 months? Tighten your belt a bit, at least you still have the property and it's still there waiting to be occupied. Everyone needs a place to live, be it rent or purchase, but surely a No Interest, No Mortgage, affordable/month, payment in the Rental sector sounds far more attractive than getting a loan of more than triple your budget every 6 months?

To sum it all up, the crises is only affecting the banking sectors and certain groups of peoples Job Security. The Properties will still be there, even if the developer shuts down.

Key-Ready Properties are the best option to buy now IMHO.

Just my 2 Fils ,

Cheers,

Hussein Awadh

Hi Hussein

You two fils are fils of gold to those who can see the value. The market is stabilizing to what traditional real estate holdings are - long term. The sooner owners realize that this is not going to turn around in a few months - they'll wake up and start renting out those units for income - at the new adjusted market prices... and be prepared to wait.... With decresed inventory being introduced into the market over the next few years - they will still have a solid investment as existing inventory gets absorbed.

well done!

 

[sonofthedesert]

"The sooner owners realize that this is not going to turn around in a few months - they'll wake up and start renting out those units for income - at the new adjusted market prices... and be prepared to wait.... With decresed inventory being introduced into the market over the next few years - they will still have a solid investment as existing inventory gets absorbed. "

- Good points all, but you must still realize that there is now a major problem with banks giving out loans/mortgages for many of these properties as most were purchased at severly inflated prices. I know of a few people who made a few installments, were unable to flip and then tried to secure a loan in order to rent out their flats. The banks that were initially tied in to the project refused as the places are now undervalued by 30-40%!! One has no choice to walk away if that happens and the more this takes place, the more pressure is placed on the already decreasing prices. Please make sure you contact the banks if you were intending to mortgage 60-80% of the price. Some are still lending, but many are now refusing.

 

[financier888]

"The sooner owners realize that this is not going to turn around in a few months - they'll wake up and start renting out those units for income - at the new adjusted market prices... and be prepared to wait.... With decresed inventory being introduced into the market over the next few years - they will still have a solid investment as existing inventory gets absorbed. "

- Good points all, but you must still realize that there is now a major problem with banks giving out loans/mortgages for many of these properties as most were purchased at severly inflated prices. I know of a few people who made a few installments, were unable to flip and then tried to secure a loan in order to rent out their flats. The banks that were initially tied in to the project refused as the places are now undervalued by 30-40%!! One has no choice to walk away if that happens and the more this takes place, the more pressure is placed on the already decreasing prices. Please make sure you contact the banks if you were intending to mortgage 60-80% of the price. Some are still lending, but many are now refusing.

You are absolutley right. The banks will have to assess the property on a project to project basis - the strength of the developer etc... And if the market has adjusted downward (based on prices after June 2008) - then if you paid 30% - that equity is gone for now... you'll have no choice other to try to resell at negative premium or continue to pay unilt closer to completion... or walk...

 

[loai]

lets hope things get better soon.... 2nd quarter 2009

 

[Hussein Awadh]

Well it appears banks have increased Salary limit for Expats by 200% when it comes to loans. Also, there's suddenly a huge amount of properties going for rent, and rent prices haven't increased at all. Any predictions or speculations?

 

[sonofthedesert]

Well it appears banks have increased Salary limit for Expats by 200% when it comes to loans. Also, there's suddenly a huge amount of properties going for rent, and rent prices haven't increased at all. Any predictions or speculations?

That news about Emirates Bank/ Dubai Bank is not good - 25,000Dh/month salary for a mortgage...WOW!! An increased supply of empty apartments won't be too big a deal for landlords as people can't buy them anyways (no mortgages )and will need to rent. Some competition will come from those who were able to secure a mortgage and are also desperate to rent out and this may lower rates. Another problem is the increasing numbers of people that will be leaving the UAE due to job losses and the continued slowdown in real estate, construction, finance etc. If there aren't as many people around to rent, you will see further declines in rental rates. Banks are cutting credit limits, making it more difficult to secure any type of loan etc. because they know many expats are in a bind and are taking out loans, maxing credit cards etc. and planning on running from the UAE. I hope rents hold up, but I fear we may see some declines. I no longer trust the more optimistic forecasts with respect to the UAE economy!! If people say a 10-20% drop is expected, I plan for a 40% drop.