Coming to terms with a downturn

ANALYSIS Ajman's main developments came late to the property boom, with the market turning sour before hardly anything was built.

An oasis of activity: the emirates City development, off the Emirates road in Ajman, is one ofthe few projects in the area that pears close to completion.

Ajman's main developments came late to the property boom, with the market turning sour before hardly anything was built. The first projects launched in 2005 within Ajman city have been finished or are close to completion, but along the Emirates Road more than a dozen suburban cities have been launched and the only towers standing are those of Emirates City. Thousands of property buyers invested in more than 900 other towers but most of them are just dusty plots or marks on a map. Buyers have disappeared, either because they were speculators and ran out of money or because they lost faith in the market.

"More than 90 per cent of clients have stopped paying in Ajman," says Mohammed al Zarah, the vice president of Great Properties, a broker selling Ajman real estate. "I believe that not less than 30 per cent of the projects will be cancelled in Emirates Road and I am sure that more than 60 per cent will be put on hold." Ajman is peculiar because most of its land plots have been sold to first-time developers, mostly from Pakistan.

"In Ajman there is no big developer, only master developers," Mr al Zarah says. "They are often individual investors who own one or two towers. They only had a few millions in cash to pay up front and were dependent on investors' money to finance the projects." As property prices in Ajman doubled in six months last year to Dh600 (US$163) a square foot, property buyers and developers invested as speculators, hoping to sell them after a few months.

Other less scrupulous developers have used buyers' money for other deals and have no money left to build. Some have been imprisoned for allegedly bounced cheques as they were unable to pay for their land plots, while others have fled the country. "I am in the market. I know some of the developers who received money but don't know if they are going to stay in this country or not," Mr al Zarah says. "What they have got in their accounts, many have already spent it."

Omar Bissar, the legal adviser of dozens of developers in the Northern Emirates, confirms that some have left the country. "I know personally four developers who have taken the money and fled," he says. The authorities are now trying to pick up the pieces. May 1 was the deadline for all developers in Ajman to apply for registration with the new property watchdog, the Ajman Real Estate Regulatory Agency (ARRA).

Investors are anxiously waiting to see how many developers and master developers bothered to apply and will qualify for a licence. Some developers are known to be reluctant to pay the high fees of registration, which are Dh100,000 for each developer and Dh50,000 for each project, especially when they do not know the fate of their development. They will then be required to open escrow accounts to identify how many developers are willing and able to go ahead with their projects.

"This will help us filter and classify the developers, and later on to make necessary steps," says Omar al Barguthi, the director general of ARRA. "This is what everybody has been waiting for. It will give us a very good indication of what is happening in the market." The second most advanced project is Ajman Uptown's 1,500 villas, where foundations are under way, followed by the smaller Boulevard, where several developers have started piling and a temporary road has been built to provide access to the plots.

In most of the other projects, master developers have barely started levelling the land. Some projects are officially being scaled back, such as Marmooka City, which may even be cancelled. "In two weeks we will make the decision whether to cancel Marmooka City completely or make it smaller for [developers] who want to stay," says Ghaleb Jaber, the general manager of Real Estate Investment Establishment (REIE), the government-owned master developer of Marmooka City and several other projects in Ajman.

Serious developers say they are suffering from a bad image caused by a few rotten apples. "You can't blame developers for buying land in instalments and sell ing off-plan properties because the law permitted this," says Dirk Sassen, a German developer in Park View. "But there are indeed a few cases of developers who have run away. Other developers like us suffer from this." Developers say that often those who were willing to build could not because their land plot was not handed over by the master developer, or because ownership was unclear.

Developers cannot enter the 206-tower Marmooka City and the gate has been closed. SM Alavi bought a plot in Marmooka City early last year. "The master developer promised to hand over in July last year but there is still nothing there," Mr Alavi says. "As per my last visit two months ago I saw that my plot was not ready for an official demarcation, even though I had paid all my plot instalments on time and a road was passing through. They also changed the place of my plot one day but nobody had informed me."

Ownership also remains unclear in Humaid City after the former private master developer, Al Rashid Real Estate, failed to honour its dues. When the Government decided last year to stop offering residence visas to property buyers, developers lost another major marketing argument that was included in their contracts with master developers. "Now end-users are looking at developers as if they were bad people," Mr Alavi says. "I don't feel well when I say that I am a developer today."

As property prices have fallen in Dubai by about 40 per cent in the first three months of this year, according to the consultancy Colliers International, the more affordable Ajman looks less attractive today. There are still infrastructure concerns, with the key issue of electricity unresolved. Brokers say many buildings have been completed but will not have power for more than a year. A Dh2 billion agreement was signed last year with a Malaysian company to build a large power plant, which developers say is likely to be delayed. "This project was linked to the developments planned in Ajman," Mr al Zarah says.

Many developers are now negotiating with each other or with government entities for options, including transferring their clients' money into fewer towers, cancelling their contracts with master developers or changing their payment plans. "I know that around 50 other developers from different cities are now discussing to get the best deal and consolidate," says Brian Pepper, an Irish developer in Marmooka City.

"We are working with Better Homes, for instance, to get their clients to transfer money into our building because we have one of the few projects with escrow." Developers in projects owned by REIE now have the option of cancelling their contracts, or getting other properties to the value of what they have paid, minus a penalty of about 30 per cent. In doing so they will clear their debts to REIE and be able to offer an alternative to investors.

Mr Bissar says he tried to get master developers to agree on consolidations. "Several master developers are interested by the idea," he says. Mr al Zarah says: "ARRA should sit with the developers and try to address their problems. "If you force them to pay they will run away. Most of the plots are owned by the Government so let's hold the payments for at least two years, for instance." REIE gave their developers a six-month delay last December. It argues that new regulations will bring in more security and give buyers time to breathe.

"Developers have no right to ask people for further [payments] unless they have completed the registration with ARRA and open escrow accounts," Mr al Barguthi says. "Payments should also be related to the completion." But delayed payments will hamper construction, as most developers need them to finance the project. ARRA's data are eagerly awaited. "We really need transparency: who are the developers, what are the projects, what stage of advancement, what solutions are there?" Mr al Zarah says. "It is not about prices now, it is about trust."

Along the Emirates Road, that is one commodity in short supply. [e-mail] [e-mail]