RERA makes funding its project
The Dubai property regulator hopes to restart as many as 48 stalled developments by working with banks to raise as much as Dh5 billion (US$1.36bn) to help finish them. The Real Estate Regulatory Agency (RERA) has taken the unprecedented step of intervening in the market to help developers of the most advanced projects raise scarce project finance.
Marwan bin Ghalita, the chief executive of the RERA, said Emirates Islamic Bank had already started providing home finance for buyers in some projects. The 48 projects have not been disclosed but they are all located in Jumeirah Lake Towers, the Marina and Business Bay. "When the crisis happened, all the banks said they are not financing any projects any more," Mr bin Ghalita said. "We came as a government and said finance should resume, but it has to be directed at the right projects."
RERA is overseeing the two-year initiative, called Tayseer, by providing the banks with continuous updates on construction progress and monitoring the use of funds in an escrow account. Money lent to the developers of the projects can be used only for construction, in contrast to 2008 when developers would sometimes use it to buy the land, market the project and pay commissions. "We are telling the banks to move your finance from end-user finance to project finance," Mr bin Ghalita said on the sidelines of the MENA Real Estate Society conference at the American University of Dubai. "We will help ensure the project will be complete."
RERA has chosen the projects based on their infrastructure, the track record of the developer and other elements such as easy access, pricing and financial sustainability. "We are telling them these are the clean projects," Mr bin Ghalita said. The move comes after Dubai revealed in a prospectus for a sovereign bond last week that nearly 500 projects had been cancelled or were in the process of being cancelled by the regulator. The full list will be revealed soon, RERA said.
Mr bin Ghalita said the Dubai property economy was finally showing signs of recovery after nearly two years of falling prices. There were now 45 sales a day on average. "Things are moving," he said. "Dubai is today a very affordable place for many people. Two years ago it was not like that. Now it is heaven for a lot of people." But third-quarter property market data released yesterday showed continued declines.
The property consultancy Cluttons said apartment prices in Dubai fell 8.7 per cent in the third quarter, compared with the second quarter when they recorded a 5.7 per cent drop. Rental rates decreased by 8.2 per cent in the third quarter. Cluttons also forecast the likely resumption of secondary sales for Nakheel projects that are being restarted as it restructures its debt, including Jumeirah Village, Jumeirah Park, and Al Badrah in the stalled Waterfront development.
Mr bin Ghalita said he did not expect a large number of foreclosures from banks this year because many of them would rather hold on to properties until the market began to pick up again. By law, any foreclosed property must be sold in a public auction. The larger hurdle for the sector is coming this month, when the strata law comes into full effect on October 15, he said. The law governs the maintenance of jointly owned property in buildings, such as mechanical equipment, lobbies and landscaping.
"There are a million different scenarios out there," said Steve Morgan, the head of Cluttons UAE. "Projects stalled because contractors haven't been paid and developers don't have the money to pay them. They just need the money. "If RERA is stepping in to help them, I think that's a good thing. It sounds like they are stepping in to make sure mortgage companies can complete the mortgage, let the buyers move in, get the contractors paid."
Published: October 4, 2010 04:00 AM