Property investors still waiting for settlements two years after crash

More investors and property developers are forced to reach out-of-court compromises after years of wrangling.

More investors and property developers are being forced to reach out-of-court compromises after years of wrangling.

DUBAI // Real estate investors whose properties remain unfinished are frustrated at what they call a lack of recourse more than two years after Dubai's fast-growing market tumbled.

Processing a court case can take several years and tens of thousands of dirhams, while turning to regulators has often proved inconclusive, according to property purchasers and lawyers.

A minority of investors can seek resolution through the Dubai International Financial Centre (DIFC) courts or through arbitration, but only if they qualify.

___________

Also

___________

The best option seems to be to lower expectations, hope the developer will do the same and try to reach a compromise.

"It may well be now that parties are agreeing to settlements that they would not have agreed to a year ago," said the property lawyer Jonathan Davidson.

"As time moves on, people move on with it."

The legal route - beginning with a specially designated property court set up in 2008, an appeals court and court of cassation - takes time. Early cases are just now reaching the final stage, said Mr Davidson.

"Some of the first cases filed post-credit crisis, around the start of 2009, are just getting to the final level of cassation," Mr Davidson said. "It's perhaps taken a bit longer than people would have first envisaged because of the sheer volume of cases."

Many purchasers have avoided the process, fearing spending substantial time and money on an unpredictable outcome. The law provides for a sliding scale of payments tied to construction progress in an attempt to keep both developers and buyers on track. But judges are not bound by precedent, removing a valuable guide in evaluating the strength of a case.

And because class action is not allowed, investors must each pay tens of thousands of dirhams to file each case, have documents translated and hire a lawyer.

"You're talking about paying a lot of money for nothing," said Ray O'Reilly, a 29-year-old Irish businessman who bought an apartment in a tower that was due for completion in 2009 but construction was less than halfway through when work was halted. Mr O'Reilly said he had paid nearly Dh800,000 - 90 per cent of the amount due - for his unit in Shami Tower in Sports City developed by Brouks Real Estate. Some 50 other investors have paid on average 75 per cent, according to records they compiled.

In an e-mail to Mr O'Reilly, a Brouks sales executive, Abdul Rahman Mohammad, said a refund was out of the question and compensation would be given at the new deadline for completion, the end of 2011, citing the "authorities" for such policies.

"It has already been decided by the authorities that no refund cases will be dealt [with] now or later," he wrote. "Per instruction from our higher authorities you will be awarded with the compensation at the time of handover."

Mr Mohammad and Brouks Real Estate did not respond to requests for comment.

Some investors unsuccessfully sought help mediating with developers from the Real Estate Regulatory Authority (Rera) which, like the property court, has found itself inundated with disputes.

Philip Cherayil and some 40 purchasers of an unfinished property in Dubailand sent several representatives to Rera's offices but did not find help.

The developer, Mazaya Real Estate, was due to complete its Queue Point project by the end of last year. In January it sent a letter blaming the delay on "force majeure" - circumstances outside its control, including the lack of infrastructure from the master developer and delay of approvals from authorities.

The claim has often been reserved for extreme situations like natural disasters.

Mazaya did not respond to requests for comment and Rera declined to comment.

"Basically you can't get your money," said Mr Cherayil, a 41-year-old engineer from India, who said he paid 50 per cent of the amount due - a decade of savings - or about Dh500,000.

"If they want to charge me for the losses that they must have incurred - take a certain amount and give the money back," he said.

In recent months, investors such as Mr Cherayil as well as developers have begun softening their positions, said the property lawyer Ludmila Yamalova.

Purchasers are giving up on the pursuit of full refunds, and developers are offering consolidations and discounts. "Before, nothing was on the menu. Today we're hearing, 'OK, let's negotiate'." She said that, while legal recourse might not prove satisfactory, it provided bargaining power in direct talks.

"The hope is never to go from A to Z, the hope is to use leverage to settle," she said.

Other more promising options, Ms Yamalova said, include the DIFC courts, which conduct cases in English and are seen as more favourable, but requires appropriate jurisdiction to hear a case.

Arbitration between purchasers and developers can also be effective, but must be provided for in the sales contract.