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In 2006, Faisal EK spent over an hour in a queue to get his hands on a unit in the off-plan Ajman development, Emirates City. With the line showing no signs of diminishing, EK was about to give up. Then, a sales assistant handed him what he thought was a golden opportunity, plucking him out of the queue. He promptly signed the contract for a 971-sq-ft, one-bedroom apartment for Dh340,000.
The Sharjah resident says the terms were very favourable — a payment instalment plan of Dh9,000 every quarter, and possession of the apartment upon paying 40 per cent of the amount.
“In 2006, everyone was buying property. If you didn’t buy, someone else would,” he says. The apartment was due to be built by 2009. But the downturn hit, turning developments on their heads all over the world.
Fast-forward to 2015, and six years after completion was due EK’s building still sits unfinished, along with a massive portion of Emirates City that was meant to be a 92-tower development, complete with a five-star hotel, shopping mall and lake.
Once bitten, twice shy
EK visits the site every few months to check on progress. For a long time the structures sat idle, though in recent months several towers have been completed and work on his own tower has picked up. EK, who is from Kerala, India, has been living in the UAE since 1989. He would have been much better off investing in his home country, he says. “I thought ‘I’m here, my children are here, let me invest here’.” He has not told his parents the truth to spare them the pain. But despite the stress, he considers himself lucky — he only paid Dh128,000 to the developer, about 38 per cent of the total amount.
Many others PW spoke to invested much more, and the majority of the thousands of investors are based overseas. EK says, “By 2008 I saw they were nowhere close to completion. I’m lucky that I’m here in this country so I can keep checking from time to time.”
EK’s developer, Star Giga Establishment, is still solvent and operational in the country. Many others collapsed and disappeared, leaving investors in the lurch. “I can see them and talk to them. They are not small people, [and] one day they will build, slowly.”
The expat’s most recent visit to the site was on February 13. He says development is only continuing on one side, while activity is almost zero on the other with nothing more than foundations in place.
Star Giga has told EK that for work to speed up, investors need to pay — the same message he received from the Ajman Real Estate Regulatory Agency (Arra). But EK is sceptical.
“We have no guarantee… There are people paying 80 per cent [of the amounts] and still they’ve got nothing. There are so many developers who ran away.”
It is hard to know how much money was invested in total given there were multiple developers, but according to the Chapal World Action Group, its 70 members invested Dh18.7 million through the developer Chapal World.
Duraid Khan is another Emirates City investor whose money has seemingly disappeared. Khan is now a customer relations manager for property developer Sweet Homes, which has completed three of its 12 towers in the development.
“Of course it’s a very sad thing. It was a huge blow to my savings. It was hardearned money and losing it was very painful,” he says.
But Khan has not been put off the property world; rather he believes that he was naive about investing money based on encouragement from friends.
“Buyers [need to be] intelligent and smart enough to investigate the companies [they’re investing in] and their backgrounds. [What happened to me was a] learning experience,” he says.
“Investing in the property market back then was like a dream come true. If you invested Dh200,000, the next year you would get Dh400,000 or more.”
However, Khan accepts that no matter from which company investors bought, the crisis affected the project immensely. He adds, “No economy in the world is safe from a credit crunch. It was the first crisis the UAE’s real estate market and economy ever faced. So before [it happened, no one knew] how to adapt to changes or the policies that should be written accordingly. It was the [country’s] first lesson and it has come out of it.”
At the time investment began pouring into Emirates City, Arra didn’t exist and money was not held in trust or escrow accounts, but in developers’ bank accounts.
“We cannot blame [any one] individual, what happened was on a large scale,” says Khan. “If that wasn’t the case, all of Emirates City’s towers would have come up and only one or two companies would be suffering.” In hindsight, Khan wishes he had invested with Sweet Homes. “I won’t say we performed well, but we survived all those adverse conditions and came up with a better outlook.” He says Sweet Homes is soaring again - good news for its investors.
“Things have changed drastically in the past year,” says Khan. “People are investing again, buying and selling properties. We’re advertising extensively on all forums.” Many nvestors who had stopped making payments have now resumed as well. “There’s a very good chance that people who lost their investments or [thought they] would never see their apartments [will be surprised] as those dreams are becoming reality again. In the next one or two years we’ll have their apartments ready for them.”
Still, the three completed towers are yet to be handed over to owners. Khan says that will happen within the next month.
Work in progress
Qatar-based A Sen Gupta is not so convinced about this rosy outlook. He invested in a two-bedroom apartment in the development at a cost of Dh596,000.
In March 2013, after realising his building was practically abandoned, Sen Gupta swapped his interest in Emirates City to a villa in a Sweet Homes project called Ajman Uptown. He paid almost 85 per cent of the Dh625,000 price tag before giving up payments a year ago. The villa was due to be completed at the end of 2013, with one year for delays, but work is still ongoing.
He has been told it will be at least March before a new time frame can be provided. “The period from May 2008 to date has been filled with frustration, slivers of hope, disappointment and, above all, buyer’s remorse,” says Sen Gupta.
“After the property market recovered in the UAE, [I hoped] Sweet Homes would wisely consolidate its projects, arrange for finance from high-net-worth lenders and start handing over the units. In the best-case scenario, I thought it would liquidate its projects and [release] customers’ money from the escrow accounts with nominal interest. But now I am not sure [if] it’s willing or able to finish its projects.”
Khan says Sweet Homes cannot refund any money as it has already been used in construction. However, customers can sell their interest shares in their properties, which the company promises to help arrange. “Just [recently] we sold about 15 units,” says Khan.
While some investors have expressed frustration that their complaints to Arra have fallen on deaf ears, Yafea Eid Al Faraj, Executive Director of Arra, says in the past two years the agency has settled 14 property disputes totalling Dh8.07 billion “as part of its efforts to regain investor confidence in Ajman’s property market”.
“For the past few years, Arra has focused on providing Emirates City investors and buyers of [units] in the stalled projects in other freehold areas with property swap options, as redeeming their monies is a process that requires court decisions,” Al Faraj adds. “Arra is working to settle disputes in other stalled projects.”
Investors who paid the unit-related payments into trust accounts can recoup their investments, he says, while others could lodge a complaint with the authorities. However, he acknowledges that in some cases this will be a tall order as some developers disappeared shortly after Arra was established in 2008 and began to ask developers for full project and investment details.
Al Faraj explains that while the recession proved to be a “tough lesson” for all involved with development, he remains optimistic about Ajman’s good investment climate and ongoing projects, especially with the market performing strongly. “The UAE remains the best destination for secure investments due to several factors, including economic stability and [good] infrastructure.”
While all hope seems lost for some, Hassan Elhais, Senior Partner at Al Rowaad Advocates and Legal Consultants, says whether investors have a chance of recovering money depends on the circumstances of the case. One major factor is if the developer was a limited liability or sole establishment company. “If the developer is a sole establishment, even if it is bankrupt, you can still [make a claim] against the owner and assets,” he says. “Unfortunately we don’t have a big number of those — most of them were limited liability [companies].”
Other important aspects are if the money paid was held in trust, and whether construction has begun and the developer is available.
"Bankruptcy is not the end of the game. What are [the developer’s] assets?” Elhais points out. He also recommends that interested investors contact a registered UAE lawyer to seek advice whether they have a case to pursue or not.
Source: Amanda Fisher, Special to Property Weekly