Real estate developers face difficulties due to ‘cowboy developers’ in UAE
New and existing real estate developers in the UAE are finding it increasingly difficult to finance their proposals as a result of concerns over cowboy developers who secure loans and buyers' down-payments on property projects then flee the country.
As a result, banks and financial institutions are becoming increasingly wary of lending to new developers due to a stabilizing property market and companies which complete their projects late or not at all, according to Gulf News.
Barmak Besharaty, managing director at Dubai-based Almas Capital, which specializes in UAE real estate lending and construction loans, explained that the difficulties will worsen for developers when the Dubai Land Department introduces regulation on escrow (trust) accounts, whereby investors' payments are safeguarded by independent bodies. At the moment most payments are made directly to the developers, many of which use the money to finance construction.
"Dubai is a new real estate market and there are some private developers with no experience in the market," said Besharaty.
"They may have been a cargo or trading company which see the potential of the real estate market, so they buy a piece of land, place an add in the media and collect a percentage of people's payment. Then they simply get on a plane and go back to where they came from.”
"It's extremely rare that this happens because of the risks involved and the fact that developers can make more money by completing a project, but lenders are still very concerned," he added.