Buying an off-plan home in Dubai is easy, and with new projects especially of the iconic flavour being snapped up in days there is little sign of a slow down. You don’t need to live or be in Dubai to buy there with the process being as simple as A,B,C the options are numerous, go through a property agent or contact the developer directly. All that remains is to sort out the deposit , sign the contracts and wait for construction to begin. With massive discounts available for pre-construction apartments and villas it’s the logical stage of the building process at which to buy.
Can Dreams come true?
The rest of the dream home story should read something like this: You keep paying your regular payments which were agreed before the contracts were signed and the developer keeps constructing your home in the clouds. Depending upon the size of the project a date of completion of construction is given, although most of the time these seem to be plucked out of a magic hat as a guess to how long construction will take, but every home owner is willing to accept a few delays as long as the process keeps moving in the right direction. Most property developers worth their name will keep the investors informed of the construction process and of any problems or delays to keep their minds at ease.
However this is not how every story in Dubai reads and there are warning signs for the industry of the potential pitfalls ahead. In any cut throat market the first throat cut is that of the profit margin being competitive is the name of the game, Dubai real estate is no different. To be ahead of the game you must be competitively priced and offer a beautifully packaged home and lifestyle. All this cutting sometimes means that developers in their eagerness to sell and get the project off the ground make mistakes in the number crunching leading to changes in plans mid-way or prior to construction.
Lack of Equipment or Spiraling Costs
Erecting a Skyscraper is just more than bricks and mortar work it’s a detailed technical process requiring the correct equipment. Even before the first layer of cement, piece of Titanium steel or whatever the latest material is put into the ground extensive soil testing is required followed by piling and then construction.
With so many building projects around in Dubai there is a dearth of both equipment and expertise leading to a winner takes all market. Those companies and projects which can afford to source the correct people can get ahead of the competition and have their towers cutting through the summer sky in no time.
The problems occur for some of the smaller developers who may not be able to afford to pay the high prices or who may be put to the back of the queue due to favouritism for government backed projects. With this level of demand their will inevitably be those who wish to cash in on the desperation of others because the one thing sure to rise with demand is price. However what is seen as a positive move by the government was the blocking of an attempt by cement producers to increase the price of cement by DH10 per tonne. Their explanation was the continued upturn in inflation and the price increases in other building materials. It seems some will stop at nothing to try and hold the industry to ransom.
Availability and pricing of raw materials aren’t the only pitfalls facing developers in Dubai there have been several cases where fully residential towers in Dubai have had the addition of Hotel rooms or office space to the plans to source additional revenue. This will normally occur on the higher floor which seem to be the hardest to sell as penthouses don’t come cheap. These changes might be supplemented by drawing in extra appartments at the lower levels again to appeal to a different market in the hope of more revenue to fund the building. The changes will often lead to a temporary halt to construction as a re-design of tower is carried and may even involve early processes such as piling having to be re-done due to the design changes.
Shattered Dreams
In more extreme cases construction will stop for a longer period of time leaving investors hanging on for it to re-start. A prime example of this is the Lighthouse tower which was planned for the Dubai Marina area. The offers were very tempting with “Buy a 2 Bedroom apartment for the price of 1 Bedroom apartment” type sales pitches it’s no surprise business was quite brisk and it was completely sold out. The project was still being re-sold on a number of prominent and well respected real-estate sites as late as early 2006.
Construction started around the beginning of 2005 with a delay of several months to the original completion date of early 2006. At the start of 2006 only the foundations had been laid and progress on the construction appeared very slow to non existent. But a new completion date of December 2006 was given to the investors.
The developer Emad Ayoub, who was developing this independently from his own company Ayoubco General Contracting LLC, disappeared in early 2006 leaving 450+ company employee’s and 80 Investors in the Lighthouse tower high and dry. Mr Emad Ayoub, now living in the UK says he has no money to carry on with the project even though most investors have paid 70% or more of the cost of their apartments to him. Currently the investors are out of pocket with a unfinished project locked in a legal battle to try and get back there money or the project back on track. As there is no law and no answer to the SOS by either the government or master developer Emmar it seems it could be a long hot summer for the investors and the construction workers who have not been paid and now out of work too.
The Way Forward
It is clear that more legislation and regulation of the developers building in Dubai is needed, investors need to be confident their money is safe and if the worst happens there are clear channels and processes of moving forwards. At the moment anyone with money and business plan can buy land on an instalment basis in some locations and start to sell apartments after having the design approved, but well before any soil testing, excavation, piling or real construction.
Maybe a system similar to the Spanish real estate industry should be adopted where the money is held in an escrow type account and only accessible upon reaching certain milestones or more guarantees and assurances required from a potential developer. Maybe a payment scheme which is based on construction milestones, so investors only make a payment upon reaching the milestone not just every 6 months. Only time will tell if things change but for Dubai to be a true global city they must.
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