Dubai starts to deregister properties

A Dubai Land Department resolution allows developers to repossess properties and retain 40 per cent of their value.

The Dubai Land Department has started to deregister properties, which strips buyers of their title, after sending hundreds of letters to investors who have missed payments on off-plan projects. The letters were sent on behalf of developers that have completed 80 per cent or more of a project. The release on April 15 of Executive Council Resolution 6 of 2010 has allowed developers, including Emaar Properties, Deyaar Development, Omniyat Properties, Al Fajer Properties and Al Mazaya Real Estate, to repossess the properties and retain 40 per cent of their value.

Mohammed Sultan Thani, the assistant director general of the Dubai Land Department, said "some" properties had been deregistered since the procedure began, adding that buyers were agreeing because they "don't want to pay any more". He referred to one developer, which he declined to name, that had issued about 225 notices, out of which 200 investors were willing to have their contracts cancelled. "It's mostly happening through mutual agreement ? only a few people are making problems," said Mr Thani.

Seized properties will be auctioned by the Land Department, with the funds going to the developer unless the sales generate a surplus, which will be passed on to the original buyers. Mr Thani added that no properties had yet been put up for auction. Still, there are dozens of investors now considering legal action against a ruling they consider favours developers. Omar Ramaznouf, a Russian investor who has paid Dh10 million (US$2.7m), or 60 per cent of the total price, towards 16 office units at Mazaya Business Tower in Jumeirah Lake Towers, received one of the Land Department's notices last month.

He has not made payments since December 2008 because of the financial downturn, although he has been trying to extend his payment plan with the developer, Al Mazaya Real Estate, said Mehdi Guliyev, his business partner. Mr Guliyev said they had not had any feedback from the developer since receiving the cancellation notice. "We'll try to resolve the issue in the best possible way without taking any legal action, but if they force us to do so then we'll definitely go to court," he said.

Nabil Ahmed, the head of research for the region at Deutsche Bank, said the move to cancel contracts and repossess properties was a last resort for developers whose profits had dwindled since the financial crisis took hold and was also a way to "clean out" the market. "Most developers have been managing to limit default rates through consolidation," he said. "They are now working on the 20 or 30 per cent of those they couldn't help and who are defaulting simply because they don't have the means to pay the remaining amount."

During the property boom, many developers depended on the off-plan model, in which projects were financed by selling units before construction actually started. The practice fuelled speculative buying and inflated prices, which have fallen by as much as 50 per cent since the end of 2008 after surging 78 per cent in one year from June 2007. It was also a time when few property laws governed transactions between buyers and developers.

"Most developers are in a very strong position legally, given the lack of rules we had in the market and clarity we had in the contract [at the time they were signed]," said Mr Ahmed. [e-mail]