Monday, 11 May 2009

Off plan buyers on the run

From Construction Week 10 May '09
Eighty percent of buyers attempted to ditch their sales contracts with a major developer when the financial crisis hit the region, the firm’s CEO has told Construction Week.

The figure gives some insight into the scale of the problems faced by developers since confidence in the real estate market began to evaporate last November.

MAG Group CEO Mohammed Nimer revealed that four out of five off-plan buyers notified the firm of their wish to default when it was announced that projects they had bought into had been postponed.

The developer accepted no more than 10% of a property’s value from its buyers before construction had begun on the project in question, Nimer assured CW.

“When we told our investors that the job had been postponed, 80% of the buyers contacted us in writing, quitting their intention to proceed,” Nimer said.“

(The main reason) was lack of finance. Or there were people who wanted to pay the first 10% and then sell to make a good premium.”

As a result, the firm has instigated a number of schemes to find a solution that benefits both parties, Nimer said.

They include the option to transfer the investment, at current market price, to a unit within a project that has broken ground. This option has been implemented despite the fact that prices at are now lower than they were in 2007, when sales on the now-postponed projects were launched.

Nimer said MAG Group is selling units today at 2004 prices, and has pledged to complete all of its projects that have broken ground.

Jones Lang Lasalle CEO Blair Hagkull underlined the importance of doing so. “For the long-term stability of Dubai and the region, it’s really important for those projects that have been started to be completed,” he said. Nimer also said that the group’s Dubai Marina project, MAG 218, would be complete by December despite suffering delays over the past 18 months due to material and staff shortages.

MAG Group has a property portfolio worth US $817 million (AED3 billion), with three “pipeline” projects yet to be launched. These include MAG 220 in City of Arabia, Dubailand, and MAG 230 on the Palm Jebel Ali.


  1. Hey Carolynn,
    excellent and informative blog you run!

    I was looking for an email id/ way to contact you but since none was found, i have taken the liberty to write via the comments section.

    First up apologies for web crashing!

    Here's my story-
    I moved out last August after 4 years in DXB, having purchased in Wadi Tower, Dubailand in Nov 2007.

    However, recent pictures show they've only just started work on the foundation!!

    Obviously this has stressed me out and stretched my finances, until I came across Law no.9 and your blogspot. And the fact that you're a lawyer.

    Would really appreciate your pov.

    If i may...a few queries?

    Can i assume this law protects me? Someone who has taken a mortgage, as the construction was supposed to be ready Dec 2008/ first quarter they claim dec 2010!

    Obviously this has wrecked my finances, and defaulting on the simple interest monthly to my bank is only a matter of time.

    Who am i supposed to get in touch with? RERA or ?? to lodge a complaint?

    Should i mail the developers directly, asking for a refund (assume almost full)?

    How does this effect my relationship with my bank who i took the mortgage from?

    Would be very grateful if you pointed me in the right direction... of whom?(perhaps a forum?) i should get in touch with and where to go from here.

    Sorry for the bother but i guess desperate times call for desperate measures.


  2. Dear Ranadip

    My colleague has very kindly provided the following thoughts - this is not legal advice and no liability is accepted.

    I'm sorry but as you probably anticipated, its not good news:

    "The new section 11 of Law 9 outlines what happens when a purchaser is in default.

    The poor purchaser in that predicament is almost forced to default (or keep paying) - neither option is attractive.

    Assuming that the buyer does not want to keep paying (will the lender continue to advance anyways?), the buyer can stop paying, the developer can note them in default (which is ironic in extremis)

    Then Law 9 will apply - as it sounds like the developer is between 1% and 60% done, the developer can keep up to 25% of the purchase price (not the amount paid so far). I agree, this is unfair.

    To the extent that 25% of the total purchase price has not yet been paid, the developer can pursue the buyer.

    The complicating factor is the bank. I cannot comment on that (or even suggest a course of action) without seeing loan documentation, but the agreement might have been pledged as security, in which case the buyer may put themselves in automatic default if they try to terminate or breach the agreement in any way. The bank could take a run at the borrower and either set off indebtedness against the borrower's bank balance or worse.

    As for the developer's default, it would depend on the wording of the contract, but I have read many of them and have yet to find a reason to be optimistic.

    Yes, a trip to RERA is the thing to do, but have a clear understanding of how the bank fits into all of this. In any event, it is usually my advice to speak with the bank first (but find someone with some understanding and authority). Ideally, the bank wants their money advanced to date as well as any interest. After repayment of that they may not care (and would probably prefer to get out of funding any Dubai project anyways).

    There are technical default provisions in the law if the project has been cancelled (doubtful if it has progressed).

    Sorry, it is a bad place to be, but you are not alone."