Deyaar creates distressed asset fund

The Dubai property company, has secured Dh200m from regional investors for the new entity.

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DUBAI // Deyaar Development, the Dubai property company, has secured Dh200m from regional investors for a new distressed asset fund that will buy property from buyers who default on their payments. Markus Giebel, Deyaar's chief executive, said the creation of the fund was the final step in a strategy to lower the company's default rate from about 50 per cent to the low single digit range. "The fund is finished and ready to go," he said. "We are going on a roadshow to Saudi Arabia and other countries in the next couple of weeks. There is still strength and liquidity in the region."

The close-ended fund, which has been established along with Dubai Islamic Bank, would be between Dh500m and Dh1bn. It would work by buying defaulted property from Deyaar and holding onto the units for several years and reselling them for a profit. The fund would be able to buy the units from Deyaar a significant discount because of the way Dubai's laws governing defaults are written. Under the recently introduced Law 9 of 2009, a buyer loses all or a significant portion the payments they have made to a company if the project is well underway in construction. So when a buyer defaults, Deyaar will get to keep a percentage of the purchase price, allowing it to sell below market value to the fund, Mr Giebel said.

Deyaar has already eased payment plans, cut prices and consolidating its holdings to prevent buyers from defaulting, but there is a remaining 20 per cent of buyers who cannot be helped and will likely be unable to pay for their purchases. The creation of the first-of-a-kind fund and other proactive efforts to reduce Deyaar's default rate led Nomura Securities to call the company a "market leader" in Dubai in a recent report. The company has had a challenging year dealing with both the detainment of its former chief executive on fraud charges and a dramatic slowdown in the property sector.