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Canceling Dubai Property Deals Is Nearly Impossible

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On a sultry June evening in 2007, more than 100 people camped out at the offices of Emaar, a prestigious Dubai property developer, to ensure that they would land a coveted spot in a gleaming new skyscraper scheduled for opening this year near the Burj Khalifa, the world’s tallest building.

Today, the property, designed by the New York architect Frank Williams, who died this year, is, like a number of others around Dubai, little more than a rotting foundation. Its value has plunged by more than 40 percent since 2008, after the collapse of Dubai’s real estate boom.

“It’s really a disaster, the situation in Dubai,” said Silvia Turrin, a real estate agent who bought into the property, 29 Boulevard, and has been unable to get her money out. “It’s not like in Western countries — it’s very difficult to exit here if there’s a problem. And we’ll never get our money back, but now we’re stuck dealing with this hole.”

Dubai lured people to a gold rush in sought-after properties at the height of its real estate boom — including business and political leaders from Afghanistan who invested the deposits from Kabul Bank, one of the country’s largest. The near-collapse of the bank in September was largely a result.

At the time, few asked if there was a legal framework for resolving potential disputes. Now, with the glitter gone, interviews with investors, legal experts and real estate analysts here show that many who bought in are finding it hard to get out.

Despite the construction delay, Emaar is still holding the down payments of as much as 80 percent required to secure an apartment, Ms. Turrin and other property holders said. And Dubai’s opaque property laws have made it virtually impossible for those who bought in to walk away, even as interest accumulates on their construction loans.

In a statement, Emaar acknowledged that 29 Boulevard was still “under construction” but said that it upheld transparency standards and had “taken several proactive measures to address the concerns of investors on developments that are in the pipeline.”

It said those measures included the option of purchasing other completed properties. Investors, however, say the properties being offered are in some cases smaller, less attractive, and more highly priced than those they agreed to buy.

Emaar is not the only developer with similar problems. Scores of other buildings around Dubai are well past their delivery date, or have yet to be started. Apartment buyers who made down payments for property construction are unable to find out what is happening with their funds, these people said. Bank loans held on undelivered property often cannot be forfeited, and borrowers have had to pay higher interest rates even as banks have refused to let them walk away from the mortgage.

“The rules of the game are definitely opaque here,” said an investor who has bought several properties in Dubai and who insisted on anonymity because of talks with developers and regulators. “In the United States, I would know my legal position much more clearly and could take actions if necessary.”

Most developers have also thwarted the formation of owners’ associations that could take control of their building’s finances and ensure the transparent management of condo fees, which many owners say are used by developers to take in yet more money.

Dubai has compressed decades’ worth of real estate development into the last 15 years. But the legal framework for resolving property disputes, and the nature of the contracts themselves, are still as incomplete as many of the buildings around town, analysts said.

Living the dream...

Still at least property values can only go up and Dubai will recover....

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It took them about 2/3rds through the article before they came out with it and said the problems were through a serious lack of buyers for Dubai property. They didn't make it clear at first and the problems could have been due to something to do with the actual construction or bank funding or something else like that.

It would have been interesting if they'd also added a few lines about how it's affecting Dubai property prices in general, not only new developments "under construction". There have been reports of big collapses in prices.

Edited by billybong
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Dubai property ASKING prices are down about 60% from the 2008 peak.

If you go to bhomes.com (one of the bigger estate agents) they now have a very interesting "feature" on properties... its a "make an offer" where you can put in cheeky offers right online... this is after the 60% collapse in asking prices!

I doubt many are taking them up on the offer. One of the key reasons being the ridiculous service charges that can be up to 1000 pounds a month for a 3 bed apartment!

BTL'ers in dubai are struggling with rental rates that have come down 70% since peak, at the same time, their service charges are going up by around 5-8% per annum! I know of people renting out their apartment for 41k dirhams. They pay 25k dirhams in service charges (the service charges are paid by owners not tenants). With the service charges going up year by year, and their tenant negotiating a better rate... by 2011 they will be paying 28k service charge and getting 35k rent... by 2012... they will be paying people to stay in their flat! :D

I would say if you can find a development with honest levels of service charges (and there are a few), 2011 could be a good year to buy in Dubai.

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I would say if you can find a development with honest levels of service charges (and there are a few), 2011 could be a good year to buy in Dubai.

..the problem with service charges is there are no controls....current low charges in some properties may be used as teasers to get the sales ....and then the charges are moved up...... :rolleyes:

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