Thursday, 29 January 2009

Property Poker

This article by Rob Corder from on 9 December '08 explains "flipping".

For what some might call semi-professional property speculators and others might call amateur gamblers, the game is up. Flipping properties – the business of buying villas and apartments off-plan and then selling them before they are built – has made millions for the professionals, but is about to cost the amateurs their shirts. The problem, as with most gambling, is that it becomes addictive and destructive. The value of money changes as you win it. The descent into dangerous addiction for many of these flippers has gone something like this:

They took a punt on their first property around three-four years ago. The earliest property pioneers, who might have bought a luxury apartment off-plan on Palm Island for less than the price of a granny flat in their home country, watched the value of their investment double, treble, quadruple over the first two years.

These were typically high net worth individuals with diversified portfolios who were well-judged in taking a punt on embryonic real estate laws and a visionary development.

Word spread that easy money was being made and the amateurs poured into the market. Conditions were perfect: the market was rising fast; disposable incomes were high thanks to relatively cheap living costs at the time (yes, they really were low four years ago); and banks were ready to lend money to anybody with a reasonable salary certificate.

A gambler would probably have started relatively small, perhaps a modest apartment in Jumeirah Beach Residence. But when that property doubled in value before the tower’s foundations were laid they borrowed again from the bank using the paper profits from their first apartment as collateral.

The banks were even more willing to lend because the punter had a tangible asset as security. Now the player could double-up.

A year or two later, nerves began to set in about the Dubai property market. There was a lot of talk of bubbles bursting and it seemed a good time to cash in those chips. A lot of this profit taking went on at the beginning of 2008, heralding the first signs of a correction.

But the gambler was now hooked. The original investment of 500,000 dirhams had been turned into five million dirhams, and the money was burning a hole in his pocket.

The Dubai market looked like cooling a little, but Abu Dhabi was still red hot. The time for the big play had arrived. Five million dirhams used as a down payment on off-plan property in Abu Dhabi meant the same trick he pulled a few years earlier in Dubai could be repeated in the UAE capital.

If Abu Dhabi followed the same trajectory as Dubai, reasoned the gambler, five million could be turned into 20 million or more.

Then September hit. With hindsight we might now call it the Ramadan Rout. Credit markets seized, making it impossible for property developers to find finance for future projects and individuals unable to borrow money for a mortgage or even a rent cheque.

Confidence evaporated overnight. It was impossible to track the rate property prices were falling because no transactions were taking place. Worst affected was the off-plan market because nobody wanted to buy property that might be worth less when built than it was on paper.

The loss of confidence was not contained to Dubai. Abu Dhabi was hit too. The gambler was suddenly in a cold sweat. When the developer building his properties completes the construction, he will have to find a mortgage to cover the outstanding balance of the price he paid.

But the banks are no longer lending. The properties could already be worth less than he paid for them and the banks do not want to take the risk of lending against a depreciating asset.

If he can’t secure a mortgage, the gambler is sunk and the properties will be repossessed by the developer. The only remaining hope is to sell at a fire sale price before the building is completed.

This is the picture that is being repeated across half-built real estate developments throughout the GCC, and it explains why prices have fallen so far and so fast. Thousands of speculators have to dump their properties before they are completed.

There is no short term fix that will reverse the trend. There is only a hope that prices will eventually fall so far that bottom-feeding investors return to snap up bargains.

The irony is that the same professional property dealers that made a killing on the first off-plan developments will be back to make another killing at the end.Between times, the amateur gamblers have been on an exhilarating ride, but now many are left to rue one big bet too many.

Tuesday, 27 January 2009

Sama Dubai: Shut down

Sama Contracting, the JV between Sama Dubai and the UK firm Murray Roberts, has been shutdown as of this morning. Sama was the name behind the much delayed Lagoons development in Dubai. Meanwhile, the developer behind the Lagoon project "....has said the local real estate market "badly needed" a correction in prices. Tahir Schön, chairman of Schon Properties said he was "unworried" about the downturn in the sector." (
Mr Schön stands alone as the only person in the UAE unworried by the downturn.
In further developments, Arabtec (UAE's largest contractor) is pursuing the government owned Meydan Group for payments following the termination of the JV contract to build the new Nad al Sheba racecourse. The other JV partner, Malaysia's WCT Bhd, are reported to be poised to claim $84 million in compensation after the termination.
What's that Polish curse "May you live in interesting times"? We're certainly living in them!

Monday, 26 January 2009

Made redundant? Think twice about suing your employer

From "The National" newspaper (Abu Dhabi) 25th January 09

Imagine if the IRC started making similar rulings "Filed out of time? You're deported", "Failed to appear? You're deported", "Still wearing the same suit you wore in Court in the 1980s - you are so deported!".

Expatriates who lose their jobs and who want to sue their former employers have been warned to proceed carefully. The Ministry of Interior has told ex-employees that if they fail to adhere to proper legal procedures they could be fined or even deported. It said that disgruntled workers must first take their complaint to the Ministry of Labour. If that fails to resolve the dispute, then they may file a lawsuit with the courts.

However, it stressed that in filing their legal complaint, they had to secure a letter from the court, which they then had to send to both the Department of Naturalisation and Residency and the Ministry of Labour.The letter would confirm they have a legitimate case pending with the court and should be entitled to an extension of their residency visa.Lt Col Rashid al Khadar, the head of the legal affairs department at the Ministry of Interior, said this would allow plaintiffs to remain in the country while awaiting a ruling on their case. Otherwise, they will be considered as being in the country illegally.

Lt Col al Khadar said a worker with a pending case against a former employer could obtain a six-month, temporary work permit from the Ministry of Labour, which could be extended until the court rendered a verdict.He said if a labour case dragged on for several months, the Ministry of Interior could inform the court it did not object to the employee’s visa being transferred to a new sponsor.“As long as they have genuine cases against their employers, they will have the full support of the ministry,” Lt Col al Khadar said.

Typical claims being filed against employers amid the global economic downturn include failure to pay salaries and gratuities, refusal to cancel labour and residence permits, and asking workers to say they had received end-of-service benefits when they had not.Residency permits are linked to employment and foreign workers are given a month to leave the country when their residence and work permits are cancelled or expire.

“There are so many companies in financial trouble who have terminated the services of their employees without giving them their salaries and end-of-service benefits,” said Karunagappally Shamsudeen, an advocate at Al Kabban Advocates and Legal Consultants in Dubai.“Other companies have been sending their workers on a long or extended leave. If they are outside the country for more than six months, they cannot re-enter the country unless they obtain the necessary approval from the immigration authorities.

“I am currently handling 150 labour cases and seven immigration cases. I have a client who has filed a case against his employer. He received a letter from the clinic, which had closed, that his services were no longer required.“He is asking for his salary, gratuity and an additional three-month salary as compensation for arbitrary dismissal.”Mr Shamsudeen warned that laid-off workers had to stay in the country to receive their end-of-service benefits, and said it would be difficult for employees to file a complaint once they had signed visa-cancellation forms, as the forms state they had received all their dues from the employer.

He said he had also handled several cases of employers filing false absconding reports and asking the Ministry of Labour to blacklist their workers.Workers who have bank loans and credit card bills have to settle them before leaving the country, Mr Shamsudeen said, as employers normally notify the banks of contract terminations.Under immigration laws, people holding expired or cancelled residence visas are fined Dh25 a day for the first six months.

The fine doubles for the next six months to Dh50 a day. They are Dh100 a day for those who have overstayed by more than a year.People who have illegally stayed in the country after the expiry of their visit visas face a fine of Dh100 a day. But at any point they can be deported on a case-by-case basis.

Sunday, 25 January 2009

The 30 day visa, which has always meant 60 days, now means 40 days...sigh

When someone arrives in Dubai, if they hold a passport from one of the 34 ‘approved countries’, they will receive a visa stamp giving them the right to remain in Dubai for 30 days. The number and words "30 days" is clearly stamped. Oddly but up until the present time, the words “30 days” have meant that you could in fact stay in Dubai for 60 days and if you called the Immigration Dept or asked the officer issued the visa, they'd tell you so. In an earlier post you’ll have read how I did an unnecessary visa run as I thought 30 days meant, well, 30 days when in fact my visa was valid for 60 days.

Anyway, without warning and at an unspecified recent date, the visa stamp that shows “30 days” (which has always meant 60 days), now apparently means 40 days and people who are leaving the country, after having been told on arrival that they can stay for 60 days, are being fined for ‘overstaying’. Expats whose children have come to stay for the holidays have been shocked to find that their children are being fined or overstaying when they try to leave the country at the end of their holiday. Earlier this month a British child was fined 1800Dhr at the airport and was not allowed to board his flight until the money was paid. Fortunately the child’s father was at the airport and was able to pay the fine. When the father queried the sudden change in the rules, having been told when his son entered the country that the son’s visa was valid for 60 days, he was told that the rules can change every day and all travellers should be aware of that.

Other expats who’ve done a crossing at a land border within the last two days, have been told that the visa is not valid for 40 days but is only valid for 30 days.

Wednesday, 21 January 2009

You're not a lawyer are you?

How bizarre is this? The banks in Dubai have a list of occupations that are now barred from applying for bank loans and credit cards. Along with anyone in the construction field, real estate or believe it not banking, lawyers are now on the list of barred occupations. However, 'non-professional' employees of law firms are not included in the ban. So as a result, we have the strange situation where a partner in a law firm earning a 6 figure salary cannot apply for a credit card or bank loan, but his secretary can. One of our secretaries has just applied for a credit card from a UK bank that starts with Bar......, no problems, she's been pre-approved and they even sent someone to the office to collect her completed application form. The bank rep asked her several times to confirm what occupation is shown on her labour card, when she said "Archiving Clerk" the bank rep said "Oh that's fine, as long as it doesn't say legal advisor" (the UAE term for lawyer). Just to clarify, secretarial positions in the UAE by law must be filled by Emirati Nationals so you'll find that Western secretaries here in Dubai have strange occupations written on their work permits: for example, instead of "secretary" I know of many"filing clerks", "archiving clerks", an "accounts clerk" who proudly admits she failed maths and the best paid telephone operator in Dubai!

Tuesday, 20 January 2009

Dubai Rent Index

Here is the link to the RERA Rent Index:

The recent decree by Sheikh Mohammed bin Rashid Al Maktoum states that those only rents lower than 25% of the market value can be hiked, not that the rents should match the market value but we'll see won't we?

Monday, 19 January 2009

Redundancies in Dubai

Things change so quickly in Dubai. Back in August everything was booming, in October the Nakheel Tower, touted as the world’s (latest) highest tower, was unveiled with great fanfare at Dubai Citiscape, but in what seemed like a nanosecond, by November redundancies were being announced in the construction and real estate sectors and the first shivers were felt in the expat community. Since then its been a horrible time, not a week has gone by without news of a friend or acquaintance being made redundant. Your right to reside in the UAE is linked to your employment; UAE residence visas are cancelled once a person’s employment is terminated, the person then having 30 days to leave the UAE. No job=no stay. Often wives and children are included on the husband’s visa so when his visa is cancelled so are theirs. Many companies have given redundant employees a grace period of two to three months to look for alternative work before their visa is cancelled. However, jobs are hard to find with companies across all sectors having frozen employment.
Faced with the realisation that there is little chance of future employment in Dubai, people are searching for work in the other emirates of the UAE or further afield in Qatar, Egypt and Saudi. However, some families are making the decision to leave Dubai and return home. For most this means that household furniture has to be either sold quickly or packed and shipped home. Word on the street is that the removal companies have a 5 week waiting list to give removal quotes, which isn’t much use if your visa expires in 30 days. (Of course you can keep doing visa runs though I guess). There’s also a 4 week delay in getting shipping containers out of the Dubai port. Kids are being pulled out of school, I’ve heard that at one of the large Indian schools with 10,000 students, 3,000 students have already applied for exit certificates.
The redundancies that have been publicised, and no doubt there are many, particularly amongst the labourers that haven’t been released:

Al Futtaim - unspecified number but all construction at DFC including the extension of the Festival City Mall has been put on hold.
Al Shafar General Contracting Company - 1,000
Atkins - 170 from Dubai (10% of their workforce)
Better Homes - 50
Carillion - 400 staff (nearly 20% of their workforce in Dubai)
Casa Dubai - all staff redundant, office closed and company in liquidation. Some investors have paid for what are still holes in the ground.
Damac - 200
Dubai International Capital - a 10th of its staff
Dulsco - 800 in two stages
Gulf First Bank - unspecified number
Gulf Leighton - at least 150
Hyder Consulting - 15
Istithmar World - 13 (doesn’t sound many but its 10% of their workforce)
Mace International - The company has announced that it has reduced its staffing levels as its clients shelve projects it was managing.
Mizin - 50
Nakheel - 500 redundant in November. Trump Tower on hold.
Omniyat - 69
Sama-ECH - 140 (Sama-ECH is the JV of local developer Sama Dubai and UK-based EC Harris)
Tameer - 180
WS Atkins - 170 plus 40 from their Manila office who were working on Dubai projects
WSP - 35
Woods Bagot - "dozens" of jobs had been lost.
Universal Studios - 50. The project was scheduled for completion in 2010, but is “now delayed to the first quarter of 2012 at the very earliest”.(Zawya)
· "The Arab world has lost 2.5 trillion dollars in the past four months" as a result of the global financial crisis (Kuwaiti Foreign Minister Sheikh Mohammad al-Sabah)
· An average of 1,500 work permits and visas are being canceled in Dubai each day as companies lay off employees in the wake of the global financial crisis. (Arab News)
· 60 percent of development projects "have either been postponed or cancelled" by the six-nation Gulf Cooperation Council (GCC) states because of the global meltdown. (Kuwaiti Foreign Minister Sheikh Mohammad al-Sabah)
· The giant hotel facades on the sides of the highway at Dubailand have disappeared
· Last week, Dubai Police revealed that an alarming number of cars bought on finance were being dumped at airports.
· Carillion has no live building projects in Dubai, only infrastructure projects which are continuing.

Rumour and Innuendo 1: Back to the beginning in Satwa

The Jumeirah Garden City development is "on hold" for an indefinite period that's not a rumour, with the sales office having been closed for some time now. Word on the street is that the developer of Jumeirah Garden City, Meraas, has approached the Satwa landlords with an offer that Meraas will return their land if the landlords return the compensation cheques Meraas gave them. Whether that's true or not or I don't know, but the story is certainly out there....
Pity they trashed the park in Satwa less than a year after it was completed (those palm trees cost a packet too and they just ended up in a pile on the side of the road.)

If you think your Dubai property is going to get you a visa, think again.

By Andy van Smeerdijk, Consulting Editor "Gulf News"
Published: November 06, 2008, 19:22

The good old days
Until recently, many expatriates who purchased property in select areas of Abu Dhabi, Dubai, Ajman, Ras Al Khaimah, Umm Al Quwain were able to obtain three-year residency permits.
In these cases, the property owners were sponsored by the UAE master development company they had bought from.
Visas with property in DubaiWhen freehold property first became available to expatriates in Dubai in 2006, the emirate's three master developers - Emaar, Nakheel and Dubai Properties - facilitated the issuing of three-year renewable residence visas to owners under a special arrangement with the Department of Residency.

Visit visa proposal
Bin Galita told Gulf News that a proposal has been submitted to issue property investors a visit visa that allows them to travel in and out of the country to follow up their investments in the property market.
"The suggestion, if approved, might be implemented at a federal level, especially now that the local laws of most emirates allow foreign ownership of property. The visit visa could replace the residence visa, which was issued by some developers in Dubai for those who bought property in their projects."
Change in DubaiThis all changed earlier this year when reports of developers not issuing visas began circulating. Marwan Bin Galita, chief executive of Dubai's Real Estate Regulatory Agency (RERA) told Gulf News, "Investors must understand that owning property in Dubai is not a prerequisite for having a residence visa."
Property buyers should not expect to automatically be granted a residence visa when purchasing property in Dubai, Bin Galita explained.
"There is no direct link between property ownership and residence visas. Developers should not lure investors to the property sector with promises of a residence visa."
The lawFreehold ownership in selected areas of Dubai was first introduced in May 2002, sparking the real estate boom.
The law states, "If the homeowner has no alternative means of sponsorship for a residence visa, the first owner may be sponsored by your master developer (Nakheel, Dubai Properties or Emaar) for residency in Dubai, UAE, subject to the applicable immigration laws of the country."
However, the purchase of a freehold property does not automatically qualify for a resident visa, officials say.
Those already here
More than 20,000 families have moved into their freehold homes during the last six years, some on residence visas linked to their homes.
A person will not qualify for a visa of any type in the UAE if you are a citizen of Israel, have an Israeli entry stamp in your passport or if your passport is valid for only six months or less.
Change in AjmanUntil recently, Ajman also issued visas to freehold property owners. According to a report in Gulf News earlier this month, the Ajman Naturalisation and Residency Department has stopped issuing and renewing investors' visas for freehold property owners in Ajman.
Sharjah's stance
Sharjah allows expatriates to invest in land, villa or an apartment for a maximum 99 years, but has never issued residency visas to investors.
The numberAll expatriate purchasers of freehold property in the UAE are only entitled to own it for 99 years.
No work
Those who have purchased property in Dubai and qualified for a residence visa cannot work in the UAE on that visa. Furthermore, the visa is renewable every three years. If you bring your family to your residence in Dubai, then you will need to get a family residence visa.
Blair Hagkull, managing director for the Middle East at Jones Lang LaSalle, told Gulf News earlier this year that people should not rely on the master developer for their residency visas.
"Most people in Dubai are active in the workplace and so have a residency visa through their employer."
Elsewhere in the GCCQatar announced in 2005 that it was to offer permanent residence visas to foreigners who buy freehold properties in the country.
"The visa is issued for (an) unlimited period, not like some others who issue it for a limited period and the buyer has to continuously renew it," Akbar Al Baker, chairman of the Qatar Tourism Authority and chief executive of Qatar Airways, told Gulf News.
The Pearl, an offshore development, is the first development in Qatar that offers freehold property ownership rights to local and international buyers, irrespective of nationality or country of residence.
Rak still issues visas
Ras Al Khaimah was the second emirate in the UAE to permit foreign ownership of property in the UAE, passing a freehold ownership law in November 2005.
In Ras Al Khaimah, automatic freehold visas are still issued to all buyers of freehold property.