In a move which has surprised many people, the rulers of Dubai have announced plans to liquidate an array of building projects which were cancelled in light of the 2008/09 property crash. This was one of the worst crashes in history and saw in the region of 50% slashed off the price of property in some parts of the emirate. The opportunity for some investors to receive compensation is an interesting factor and one which has as yet not been defined in great detail.
However, there is no doubt that the intention to compensate those who lost money due to failed ventures could lead to some interesting arguments in court.
The Dubai property crash
Those who have studied the Dubai property market will be well aware of the gravity defying rise in property prices from the turn-of-the-century up to around 2008/09. This seemed to be a property market which was attracting endless supplies of funding and indeed even in light of the US mortgage crash in 2008 many believed that the property market in Dubai would continue to rise. As a consequence, this unrealistic expectation led to an even more dramatic crash in property prices in which investors lost billions of dollars.
One of the main problems was that property developers had taken down payments from investors for certain property developments which were due to be completed. When these developments were cancelled or stalled many property developers left Dubai, leaving their investors high and dry with nothing to show for their significant outlay.
Special legal committee
Sheikh Mohammed bin Rashid al Maktoum has confirmed that a special legal committee will be created which will have the final say on all cancelled property development rulings and any compensation paid. It will supersede even the highest court in Dubai although as yet it is unclear where the funding for potential compensation payments will come from. In a perfect world you might expect the original developers to step forward with some kind of financial contribution but the reality is that many have left Dubai and even those remaining are still feeling the financial impact of the crash.
Quote from PropertyForum.com : “All eyes were very much on the second-quarter results from property giant Emaar Properties as a means of forecasting the short to medium term direction of the Dubai property sector.”
At this moment in time the scheme will only cover projects which were actually cancelled, as opposed to delayed indefinitely, between 2009 in 2011. Initial estimates suggest that 217 such property projects will fall under the auspices of the new legal committee and may be in line for some kind of financial compensation.
Injecting confidence into the marketplace
The subject of cancelled and failed property developments in Dubai in light of the property crash has been a subject of debate for some time now. The fact that the leaders of Dubai have decreed that compensation will be paid where relevant should inject some form of confidence into the marketplace and assist the long-term development of the Dubai property market.
It is interesting to see that Dubai property prices are performing extremely well of late and while many are concerned about a 30% increase in rental values over the last 12 months, at this moment in time investment continues unabated. Surely we are not headed for another property bubble in Dubai and a horrendous crash?