In Dubai, When is a Project 'Dead'?

In Dubai, When is a Project 'Dead'?

Residential News » Residential Real Estate Edition | By Kevin Brass | March 18, 2010 8:00 AM ET

(DUBAI, UAE) -- After years of promising reforms in the property business, the Dubai government is wrestling with how and when to declare a development dead.

For buyers and developers, it's more than an academic discussion. Investors can't move to get their money back until a project is officially cancelled, something developers are rarely in a rush to do.

The Real Estate Regulatory Agency (RERA), part of the omnipotent Dubai Land Department, was created three years ago to address exactly this type of issue. Among other powers, the RERA was given the authority to cancel projects.

Last May, the agency listed 27 projects worthy of cancellation. But since then the agency hasn't cancelled a single development, the National reports.

"The only ones that have been cancelled are ones the developers have cancelled themselves because they didn't want to proceed," RERA chief Marwan bin Ghalita told the newspaper.

According to an auditing firm, of the 1,110 construction projects in the emirate, 243 have been cancelled or are "indefinitely on hold," the paper notes.

Of course, this is not an issue unique to Dubai. Developers around the world hang on to funds and avoid clients for years, even though it is often clear a project is dead.

But proclaiming a project dead is dicey territory. Some projects could be revived, if funding markets change. And developers are rightfully wary of any outside agency judging the status of a development.

In Dubai, where the state is involved directly in many levels of any project, there are added layers of complexity and suspicion. The formation of the RERA represented a move toward transparency and consumer protection. One of the key issues: complaints of buyers, who invested large sums to buy units in projects that haven't been built.

New regulations are due soon, requiring developers to pay clients within 60 days, if the balance in the escrow account doesn't cover deposits. But even if a buyer wins a judgment against a developer in the courts, "there is no guarantee the ruling can be enforced," the National reports.

In one case currently in the system, the Dubai Land Department is trying to mediate a settlement between investors and a project called Beachfront Living, which is part of a Nakheel master-planned development. The project is on hold while parent company Dubai World renegotiates its debt, according to the National.

But buyers want the project officially cancelled and their money returned. Instead the regulatory agency offered reduced prices and larger units in exchange for sticking with the development.

A spokeswoman for the buyers labeled the offer "absurd."

"Most of the buyers want this project cancelled," Ludmila Yamalova, an American lawyer representing buyers, told the National. "This is a one-sided offer. The Land Department is acting for the developer, not the buyers. That's not the way they are supposed to be acting."

But the developer, Omniyat Properties, says the project is far from dead, its commitment "remains strong" and there are no plans to cancel the development.

"Work continues on site," a spokeswoman told the newspaper. "Initial excavation is complete."

About 15 percent of the buyers in Beachfront Living have shifted their deposits to other projects and negotiations continue to "offer every customer a solution tailored to his or her needs, while considering our responsibility to clients whose commitment and ability to pay out their investment remains as strong as our own," the company said.

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