An Iranian property developer has taken deposits from hundreds of investors in stalled Ajman developments and given them a deduction for that amount in its Dubai projects. And when Al Masah International has transferred most of the units in an Ajman project to its name, it begins negotiations with the developer there to buy the land cheaply.
The practice is symptomatic of a market after a severe downturn, and regulators say that while such transfers are not illegal, investors should seek a proper legal opinion to avoid problems. Scores of projects across Ajman have been cancelled after their developers ran out of cash, leaving thousands of investors with deposits paid on projects that may never be built. The situation has led to consolidations among the remaining property companies as investors move their deposits to apartments and villas that are more likely to be built.
Sina Sahar, the general manager of Al Masah, claimed to have sold more than 1,000 units in his Dubai projects by exchanging them for Ajman property through about 5,000 freelance agents. Al Masah is a broker based in Dubai that also trades as a developer and registered the projects under the name of New World Investments. The company claims to own 34 land plots and launched more than 20 projects in Jumeirah Village, Dubai Sports City and Dubai Marina as New World Investment.
"All of the projects are registered with the Land Department and under construction," said Sherzod Isamidinov, a sales director with the company. "The money investors have paid in Ajman we swap as a downpayment to a new unit of ours that they have chosen." "For that, we require all their original documents - the payment receipts, contract or reservation forms. Then they have to sign a transfer form. So automatically our company will be the owner of the apartments."
Once the company has transferred most of the units of an Ajman project to its name, negotiations begin for the land, said Mr Sahar. "The developer has no longer any responsibility towards his clients," he said. "So we tell him, for example, 'we have Dh20 million [US$5.4m] credit from your clients and you have paid Dh30m for the land plot. So we give you back Dh10m [from the clients' credit] and you transfer your land plot under our name'."
But the company has not yet completed any developments. Mr Isamidinov said it had been a developer in the UAE for only two years and the master developer had handed over the plots only 10 months ago. "When a client has a problem with a developer [in Ajman], they come to us and say 'please help us'. We are not pushing them," he said. Some brokers and analysts have warned desperate investors in stalled developments against some methods of cutting their losses.
"There are so many different ways people can consolidate," said Iseeb Rehman from Sherwoods International. "They [developers] come up with all these great fancy mechanisms. I am not totally convinced that they are all viable, but there are a lot of desperate people out there who are willing to accept anything and everything." Hasnein Wakil, from the brokerage company Vakson RE, said it might be a good rescue plan for end-users who had bought in Ajman to go to Dubai in a project that had already started.
But Mr Wakil wondered what would happen to the Ajman projects and what guarantee investors had that the Dubai projects would be completed. Matthew Hammond, the head of Agency at Jones Lang LaSalle, said: "What they are actually doing is heavily discounting Dubai property to reflect what people have paid on alternative stock. "I suspect they are still making a slight profit. And on top of that they are adding Ajman stock."
Charles Neil, the chief executive of the brokerage Landmark Properties, said of Al Masah's strategy: "What they are doing is they are basically picking up land in Ajman at a discount, and they will sit on these plots for 10 or 15 years, until they go up in value." The Ajman Real Estate Authority (ARRA), the emirate's property regulatory body, encouraged investors to do proper due diligence on such deals.
"This is something we will not influence. It is each individual's choice," said Omar al Barguthi, the director general of ARRA. "But as there are developers who are unable to fulfil their commitments immediately - such an option should be available for people. I would recommend that people check with RERA [Dubai's Real Estate Regulatory Agency] and ARRA, though." @Email:ngillet@thenational.ae
