Decline and fall of credit notes - a Q & A

1450-bunker-thumb-150x201.jpg

Here is some more background on credit notes, which

from

Tom Bunker

, a broker at

Better Homes

.

Question

: What exactly are credit notes and when were they being used the most?

Answer

: Credit Notes and Consolidation Notes were quite popular during the initial stages of the crisis where developers were canceling projects and issuing investors of cancelled projects these notes in lieu of cash. These investors then sold the notes to other investors at a discounted rate of 25-50%. These investors who purchased the notes then used them to pay down their outstanding balances with the same developers. The developers honored the notes but with conditions; if you wanted to use the notes you had to have already paid a certain portion of your existing payment plan and the note you used to pay down the balance had to be worth the same amount.  So, if you wanted to make a payment of AED100,000 to the developer as that payment came due on your payment plan, the note you used had to be close to AED100,000 as well.

Q

: What were the different credit/consolidation note strategies used by developers?

A

: The only equity transfers that were available came under two scenarios: 1. Developer gave you Notes for the amount that you had paid into a project that had been canceled; 2. Developer swapped you into another similar property that they were developing that was not canceled. We have already discussed the Notes part so let us consider the swap scenario.

In most cases, the developer could not provide like properties to the investor. If investor had bought a nice 2 bedroom apartment with full sea view, it was unlikely the developer had one of these units in another property as these are normally the first ones to go. Therefore, investor was stuck with swapping into an inferior unit or as was quite often the case, he was swapped into a unit that was valued too high in the current market. What he had bought for AED700 was swapped for a smaller unit which developer valued at a higher rate as it may have been launched much later and this higher rate was so far above the market rate that the investor had no hope at all in selling the unit later.

Swapping only worked for investors who got similar properties for the same amount, but this was not generally the case. Notes were far more successful than swaps. In some cases, the investors who swapped are in an even worse position now as even the swapped property may not be built.

Q

: Are these still happening?

A

:

Notes have pretty much dried up now. There are not much is available any more.

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Brief scores:

Manchester City 2

Gundogan 27', De Bruyne 85'

Crystal Palace 3

Schlupp 33', Townsend 35', Milivojevic 51' (pen)

Man of the Match: Andros Townsend (Crystal Palace)

Brief scores:

Manchester City 2

Gundogan 27', De Bruyne 85'

Crystal Palace 3

Schlupp 33', Townsend 35', Milivojevic 51' (pen)

Man of the Match: Andros Townsend (Crystal Palace)

Brief scores:

Manchester City 2

Gundogan 27', De Bruyne 85'

Crystal Palace 3

Schlupp 33', Townsend 35', Milivojevic 51' (pen)

Man of the Match: Andros Townsend (Crystal Palace)

Brief scores:

Manchester City 2

Gundogan 27', De Bruyne 85'

Crystal Palace 3

Schlupp 33', Townsend 35', Milivojevic 51' (pen)

Man of the Match: Andros Townsend (Crystal Palace)

Brief scores:

Manchester City 2

Gundogan 27', De Bruyne 85'

Crystal Palace 3

Schlupp 33', Townsend 35', Milivojevic 51' (pen)

Man of the Match: Andros Townsend (Crystal Palace)

Brief scores:

Manchester City 2

Gundogan 27', De Bruyne 85'

Crystal Palace 3

Schlupp 33', Townsend 35', Milivojevic 51' (pen)

Man of the Match: Andros Townsend (Crystal Palace)

Brief scores:

Manchester City 2

Gundogan 27', De Bruyne 85'

Crystal Palace 3

Schlupp 33', Townsend 35', Milivojevic 51' (pen)

Man of the Match: Andros Townsend (Crystal Palace)

Brief scores:

Manchester City 2

Gundogan 27', De Bruyne 85'

Crystal Palace 3

Schlupp 33', Townsend 35', Milivojevic 51' (pen)

Man of the Match: Andros Townsend (Crystal Palace)

Brief scores:

Manchester City 2

Gundogan 27', De Bruyne 85'

Crystal Palace 3

Schlupp 33', Townsend 35', Milivojevic 51' (pen)

Man of the Match: Andros Townsend (Crystal Palace)

Brief scores:

Manchester City 2

Gundogan 27', De Bruyne 85'

Crystal Palace 3

Schlupp 33', Townsend 35', Milivojevic 51' (pen)

Man of the Match: Andros Townsend (Crystal Palace)

Brief scores:

Manchester City 2

Gundogan 27', De Bruyne 85'

Crystal Palace 3

Schlupp 33', Townsend 35', Milivojevic 51' (pen)

Man of the Match: Andros Townsend (Crystal Palace)

Brief scores:

Manchester City 2

Gundogan 27', De Bruyne 85'

Crystal Palace 3

Schlupp 33', Townsend 35', Milivojevic 51' (pen)

Man of the Match: Andros Townsend (Crystal Palace)

Brief scores:

Manchester City 2

Gundogan 27', De Bruyne 85'

Crystal Palace 3

Schlupp 33', Townsend 35', Milivojevic 51' (pen)

Man of the Match: Andros Townsend (Crystal Palace)

Brief scores:

Manchester City 2

Gundogan 27', De Bruyne 85'

Crystal Palace 3

Schlupp 33', Townsend 35', Milivojevic 51' (pen)

Man of the Match: Andros Townsend (Crystal Palace)

Brief scores:

Manchester City 2

Gundogan 27', De Bruyne 85'

Crystal Palace 3

Schlupp 33', Townsend 35', Milivojevic 51' (pen)

Man of the Match: Andros Townsend (Crystal Palace)

Brief scores:

Manchester City 2

Gundogan 27', De Bruyne 85'

Crystal Palace 3

Schlupp 33', Townsend 35', Milivojevic 51' (pen)

Man of the Match: Andros Townsend (Crystal Palace)