Monday, December 9, 2019
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Dubai raises the safeguards in project revivals

Dubai: Investors buying up stalled projects in Dubai now have to clear off all outstanding payments originally associated with these ventures, according to market sources.

It means that if investors had bought property units when the project was launched by a developer and then it got stalled for any reason thereafter, they will now have to be first compensated by the new investor who wishes to acquire the project or the plot, the sources added. Only after these are cleared can the new investor revive the project.

“It’s just recently that the Dubai authorities have made this proviso stick for any project that new investors seek to revive,” said Samir Munshi, managing director at Orion Holdings, which has in the recent past been acquiring “sick” realty ventures. (The company also funds the original developers by committing to acquire bulk units within a project and thus have the funds come in for project work to start.) “The earlier requirement was that the new investor had to make the payments for the value of the land and related costs, and did not cover any property purchases made prior to the project getting stalled.”

This could represent a major breakthrough in Dubai’s push to safeguarding investor interests tied to property assets. Dubai Land Department is spearheading the move to developing a regulatory regime for investor rights protection.

“For a new investor buying now with the intention to revive a project, the cost of entry will be higher because all legacy exposures need to be cleared,” said Munshi. “There were a lot of such projects that were cleared by the Dubai Land Department before the new requirement came into effect.

“But for cash-rich investors, there will still be the temptation to pick up a stalled project despite the higher cost involved — the market’s upward trajectory will make sure there’s enough cushion to absorb these. The process of reviving projects, however, could take longer because any of these could have hundreds of original buyers and there’s a lot of paperwork to be gone through.”

Some estimates suggest there were more than 100 high-rise projects that got shelved after some construction had taken place or even without any project mobilisation after the downturn of late 2008. In the past, Dubai authorities had rolled out schemed where some of the original developers would be funded to take up the revival on their own. Or if they still failed to rouse up enough funds, they could sell off to those who had the means.

According to a new report issued by the realty consultancy Phider Advisory, “The residential market is in resurgence… Driven by a combination of strong fundamentals and speculative capital appreciation, Dubai’s real estate market is at a critical juncture. If the market continues to experience steady growth in price and development, volatility will be limited.

“However, if irrational exuberance prevails and/or financing does not fund developments to support the city’s growing demand, volatility is on the horizon.”

The Phider report estimates that in the fourth quarter, values of single-family homes were up 18 per cent year-on-year. And, if the comparison was drawn to the first quarter of 2011, when the market hit a trough, the gains now are in the range of 45 per cent.

“Currently, single-family home prices, including villas and townhouses, are on par with first and second quarters of 2008 levels,” the report said. “For condominiums or apartments, the fourth quarter of 2013 prices rose 23 per cent year-on-year and have increased 42 per cent since the trough in the fourth quarter of 2011.”