Middle East developers losing millions as investors fall behind with payments

Major developers in the Middle East are admitting that a large number of their property investors are struggling with payments because of the global economic downturn.

Because of property price falls of up to 40% many investors in off-plan projects are facing negative equity with the real estate now worth less than the debt owed on the property. Some want to extend or re-schedule payments while others want out of their investment.

Abu Dhabi based Hydra Properties says that a fifth of real estate investors in its flagship project are behind with payments, while one in three of Al Fara’a Properties investors are struggling to meet their payments and Dubai Pearl confirmed up to 30% of investors have rescheduled payments.

Sorouh Real Estate said the number of payments on its projects that are overdue have doubled from 4% in the first three months of this year to 8% in the second quarter. Aldar Properties said between 10 and 15% of payments are currently overdue.

Hydra has been dogged by complaints from investors that its $545 million Hydra Village project is well behind schedule, that prices increases have been imposed without consultation and that it has been heavy handed with those who are struggling with payments.

It has responded by offering to re-schedule payments for some investors but has until now denied that there was a serious problems with defaulters. Now commercial director Mata Al Shamisi confirmed 20% of unit sales money is overdue. ‘Some investors are facing problems paying and we are trying to help them,’ he said.

It is not just those who have overstretched themselves that are having difficulty meeting payments according to Natasha Gangaramani, director of Al Fara’a Properties.

‘Anywhere between 25 and 30% of people are coming in saying they can’t pay. Sometimes they are customers who come from a very good background and they are seeking an extension to their payments or looking to consolidate their portfolios,’ she explained.

It is taking longer to collect payments, according to Shafqat Malik, chief financial officer of Aldar Properties. The number of investors who are 30 or 45 days behind with their payments is increasing, he confirmed.

Around 150 of the 530 investors in the $4.1 billion Dubai Pearl project are behind. Dubai Pearl Chief executive officer Santhosh Joseph said the company is now asking its shareholders for an advance capital injection of up to $500 million to cover the spiralling rate of defaults. How will issues in the middle east pan out? Are developers in the middle east the only ones suffering?

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