The chairman of property developer Nakheel, Ali Rashid Lootah, accredits the initial financial recovery of Dubai’s property market to a strict enforcement of a policy that criminalizes debt.
Mr. Lootah, who has overseen the troubled developer since 2010, says the ability to open criminal cases against those who bounce cheques, presents a serious threat for whoever doesn’t comply with the markets laws and regulations.
Under UAE law, issuing a cheque is undersigning a document that shows commitment for future payments. However, during the financial crises in late 2008, the number of failed payments soared, presenting a challenge to both owners and developers.
Eventually, by implementing a cheque fraud law, those who could not pay their loans found themselves criminally liable. However, dozens of ‘real estate’ prisoners have gone on hunger strike to protest against their jailing, seeing themselves as victims of the emirate’s property crash, not as criminals.
“It’s a criminal action here, and people should know that,” said Ali Rashid Lootah, in an interview with the Financial Times. “[Otherwise] it would have meant running around after them [defaulters] forever. It’s a deterrent tool, he added.”
Nakheel, the developer of Dubai’s offshore manmade islands, was at the core of emirate’s debt crisis in 2009. Its parent, government-owned conglomerate Dubai World, was unable to repay its debts as property prices crashed and as payment loomed on a $4 billion Islamic bond issued by Nakheel.
Debts run up by Nakheel have also pushed Dubai World to request additional time to restructure around $25 billion worth of debt. The statement came just three weeks before the maturity of Nakheel’s US$3.5 billion Islamic bond.
The emerging property market recovery has been vital for the balance sheet of Nakheel, which made a profit of about $100 million in the first quarter od 2012, compared to losses last year.
“The recovery is there, but it is selective. If you see these properties moving, then this is the start,” Lootah told Financial Times on Tuesday.
Two years ago, Prices of a small villa on the Palm Jumeirah used to cost around $1.6 million, today as this has become one of Dubai’s most sought after areas, the same villa sells for $10 million. Experts say Dubai real estate is in demand among wealthy Arabs looking for a new destination amid regional unrest.
“All good properties have seen the benefit of the Arab revolutions. Well-to-do people want a good home,” Mr. Lootah added. Palm Jumeirah property valuations rose 8 per cent in the first half of the year, according to real estate agents Asteco.
Despite price recovery, debate on Lootah’s new approach continues. Some have argued that it has a positive stance since it helped in boosting cash recovery for the developer, others say his inflexible stance has demoralized investor confidence in the recovering property sector.
Nakheel has also been using tough measures to secure payment of service charges at its developments. They have place security guards on Palm Jumeirah to prevent access to the beach and car parks, and even drained swimming pools to tenants and owners who have not paid their dues.
Tenants have complained that they are being unfairly punished for their landlord’s incompliances, and their troubles have been widely publicized in the local media. Mr. Lootah advises tenants to make sure their landlords are up to date with payments before leasing their properties.
“This has been an issue for two years and we are surprised people do not check with their landlord. We have no choice to go after the service charge or we won’t be able to maintain the communities,” Lootah told Financial Times. “Someone should pay for it, he added.”