Trade in Dubai property credit notes continues to decline.

An earlier roaring trade in credit notes, issued to buyers in lieu of a profusion of stalled property projects in Dubai in the United Arab Emirates, has virtually come to a halt

according to estate agencies in the city state. Discounts offered to potential buyers have fallen dramatically, in some instances by as much as 40 per cent, making it much

less worthwhile for agents who were making a decent living from the notes two or three years earlier.

For two years ago, agents claimed that they were achieving as much as 40 to 60 per cent discount. Now these levels have dwindled, increasing risks for the buyer with

project owners displaying a distinct lack of decisive continuity. Current discount levels are running at 25, 20 and even as low as 15 per cent, which renders buying on a power

of attorney basis, a minefield of uncertainty.

DubaiAAEs property boom, which began with the announcement that foreign buyers were permitted to by freehold properties in designated zones in the emirate in 2002, came to

an abrupt and painful halt at the end of 2008, as the global financial crisis began to ravage what was a predominantly off-plan market. Speculators, who had been buying then

AaeflippingAAE, in vogue parlance for reselling within weeks of purchase, a tactic which fuelled dramatic price leaps, abandoned the market in droves. Mortgage approvals all but

disappeared with a number of providers imposing maximum loan-to-value terms 50 per cent.

In many cases asking prices have slumped by between 65 and 70 per cent from their 2008 peak, particularly in the apartment segment, with villas only beginning to stabilise

against the persistent downward trend, in the first quarter of 2012. There were roughly 22, 400 residential properties of all types for sale in Dubai, on one of the main listing sites

www.propertyfinder.ae, as of the end of May.

A number of Dubai-based developers, among them Nakheel and Emaar Properties, issued investors with credit notes against delayed and cancelled projects, rather than provide

them with a refund of advance payments in hard cash. Probably an unwelcome but wise move, faced with a prospective flight of funds from the economy of alarming

magnitude. This policy in turn created its own secondary market, with some agents earning a million Dirhams (US$ 272,480) a year in commissions out of an industry in

crisis.

According to its chairman, heavily indebted Nakheel has paid out 6.6 billion Dirhams (US$1.8 billion) to settle claims over properties sold on projects brought to an indefinite

stop, either as transfers into developments that will definitely get built or in the form of credit notes only redeemable five years hence.

Finally, in July last year DubaiAAEs Real Estate Regulatory Authority (RERA) officially cancelled 217 property projects following a twenty four month feasibility review, leaving buyers

with even less appetite for unnecessary risk.

Copyright Andy McTiernan. All rights reserved.

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