GCC developers offer extended payment plans

Although property companies in Dubai continue to offer incentives and payment solutions to their investors, GCC-based developers are offering extended payment plans for settlement of handover amount, a realty analysts said.

Matthew Green, Head of Research and Consultancy, CB Richard Ellis (CBRE) Middle East, said some GCC developers within the region are offering investors an extension on the final payment due to developers between nine and 12 months.

"We have seen emergence of some creative payment plans within the GCC countries where final payments have been spread over a period of nine months to one year, post completion. This obviously offers the investor some additional comfort to know they will be in occupation before the final payments have to be made. This has not been widely used in the UAE, however."

For some developments, this type of payment plan has been used since product launch, and has already been factored into financial models as a result, he said.

For those developers extending payment periods to help ease risk of defaults, this will obviously depend on how "liquid" the developer is. Not all developers will be wholly reliant on receiving final payments to actually complete construction, although this is certainly a key concern for many UAE developers with stalled projects evidence of continued liquidity issues," he said.

Other more prudent firms with better access to capital will remain well positioned to complete their projects despite increased risk of payment failure from investors, said Green.

"Developers have become more flexible in order to avoid defaulting units, and in some cases investors have been allowed additional time to make their payments."

"It is important that developers remain elastic in their approach so that defaults are avoided. Predominantly developers are looking to mitigate risk in the current environment and do not want to draw back any further liability in the form of defaulted units. As such extending payments plans beyond completion could be seen as an attractive proposition to both investors and developers," he added. Green said larger developers may have a little more room for flexibility, and could be seen as less reliant on the immediate cash injection to complete a project. "Obviously for smaller developers the ability to raise development finance in order to complete a scheme may be significantly hindered due to availability of liquidity in the current market to fund such projects," said Green.

According to developers, they continue to offer payment solutions to investors but on a case-to-case basis.

"There are case-to-case instances where we are assisting genuine customers with easier payment plan," said Mohammed Ali, General Manager, ETA Star Properties. "There are some case-to-case instances where we are assisting genuine customers with easier payment plan. We believe our properties, maintenance fees and other charges are rightly priced and hence there has never been a practice of offering incentives," said Ali.

"Since these are tailor-made solutions to specific needs we will not be able to share the details. Further, this practice is not the norm and is being done on a case-to-case basis, we do not foresee any impact to our business," he added. "Discounts have never been a practice nor is it required with prices being realistic." Ali said that for ETA Star Properties, usually the final payment payable by the investor is around 15 per cent of the total value of the property.

Dr Wan Muhamad Hasni, Advisor-in-Charge, Tanmiyat said: "We are currently discussing all of our investor options and opportunities with the Real Estate Regulatory Agency (Rera) to agree a course that is in the best interest of the company and our committed investors. Before we make any public comment regarding this, we will be communicating directly with our investors."

A Limitless spokeswoman said: "With respect to third party developers at Downtown Jebel Ali, we assess and find solutions for developers' payment plans on a case-by-case basis."

Green said: "Improved transparency and greater assurances from developers are needed in order to re-build investor confidence. Knowing that a completed unit will actually be tenantable in terms of the utilities connections and the necessary road infrastructure, are currently two prominent issues facing investors at the final payment stage."

According to CBRE, some of the smaller developers in Dubai and a number of projects launched in the Northern Emirates resorted to significantly larger final payments of up to 40 per cent, both upon and beyond completion as an incentive to sell.

"This may now become a major stumbling block to achieving actual completion, as investors are reluctant to make payments on property that may now reflect significant negative equity for them," said Green.

ETA Star said that less than one per cent of its customers have delayed payments to the developers. "While the majority of our customers have paid and taken possession of their properties, the cases where delays happen is less than one per cent," said ETA's Ali.

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