Investors rally to the cause
The National Newspaper: 24th November 2008
An amendment to a property law in Dubai has brought together a group of angry off-plan buyers who are fearful of losing a third of their investment to developers they believe may not even proceed with construction. According to the new amendment, off-plan buyers wishing to halt their payments have to cancel their contract and forfeit 30 per cent of the total value of the property, instead of only 30 per cent of the money they have paid.
The investors, who formed their group after an online forum on the issue, have yet to see evidence of construction on their projects and fear losing more of their money to developers in the current global slowdown if they continue their payments – but under the new amendment they could lose a third of their properties’ value if they do not. The new administrative circular was issued by the Dubai Land Department on Nov 10 concerning amended Law 13 on the pre-registration of off-plan properties, which was issued in August.
“Many investors have already paid 20 per cent to 50 per cent in projects which haven’t even started, hence they stopped payments in order to avoid further losses caused by possible bankruptcy of the developer,” said Tommy Carlsson, one of the organisers of the Dubai Property Investors group.
“Developers are misusing this interpretation of the law to terminate as many contracts as possible and forfeit our funds instead of finding solutions together with investors.”
Investors fear that developers who already know they cannot proceed with a project will keep the 30 per cent and then later on cancel the project without needing to refund buyers.
The group, which met for the second time on Sunday and is planning to hire a lawyer to represent them, is asking for two things. It suggests that before allowing a developer to cancel contracts, the developer must first submit the audit of its escrow to the Land Department.
According to Law 8, developers must audit their accounts, but many of them have not done this yet. “We want developers to prove they have the ability to build,” said Nigel Knight, a co-founder of the group.
Second, contract cancellations should be put on hold if the client has already paid 20 per cent and construction has not started, with the payment plan proceeding only when construction actually starts.“We see that as the responsibility of the Government to make investigations about the developers and find out whom we can trust and who is not OK. We only ask the Government to protect us,” Mr Mohammed said. “We got e-mails from a developer saying we were not allowed to form a group. Somebody even tried to hack [into] our e-mail account.”
Among the developers that investors are concerned about is Schön Properties.
“Some people paid over 60 per cent of [Schön’s] Dubai Lagoon,” said Mr Mohammed, the co-founder of the investors group who did not wish to give his family name. “People ask why they should continue to pay. The developer hasn’t even started construction of their units. The developer is saying that if they don’t continue [to pay] they will cancel the contract and forfeit their money.”