How safe is your Investment?

“We have now been advised officially by the Master Developer that the Palm Jebel Ali Master Development has been re-designed and that the Plot will not be delivered. As a result of this official confirmation, we now regret to advise you that the Palm Springs project has been cancelled.

Your attention is drawn to the Force Majeure clause of the Sale and Purchase Agreement which specifically deals with this event. While under no contractual liability to do so, and in recognition of the disappointment which this notice will undoubtedly cause, we are willing to make the following offer to you:

Either transfer to Unit(s) of your choice on another Damac development of your choice at a discounted price 15% below current market.

Or repayment of monies paid by you with 6% interest calculated from the date of each instalment payment.”

The above is an extract from a letter issued recently by Damac, one of the biggest players in Real Estate in the UAE, to investors who had bought units in the Palm Springs development at Palm Jebel Ali. Most had purchased their units well over 4 years ago, and were waiting patiently for the construction to begin, and for the eventual handover. It seems that Purchase & Sale Agreement is used as a licence for many developers to defraud their global customers. An don't be surprised if the UAE government does not come to your aid and you are left to fend for yourself.

The situation in Ras Al Khaimah is no different - infact some of the safeguards such as the use of escrow accounts now making headway in Dubai are not even being talked about in RAK. So for those waiting for delivery of their dream apartment or villa the question we ask is, how safe is your investment? What’s to stop your developer from issuing a similar letter 2 years from now, or saying that those promised balconies or parking spaces are no longer going to be part of the design? How many investors have actually read their contracts?

It would be prudent if investors in the Al Hamra Village were to check their Sale & Purchase Agreement and raise issues of concern sooner rather than later. We are firmly of the opinion that Al Hamra Estates is not immune from the possibility of letting down their investors. Their lack of cutomer care speaks volumes on the ethical code under which they operate. So go on, don't just sit back and dream the dream, take active steps to ensure your dream does not turn into a nightmare.

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The Case of the Elusive Service Charge

If only we all had the luxury of open-ended contracts which developers in Dubai and Ras Al Khaimah seem to be able to use with impunity, life would be so much simpler. It would be a lot easier to sell our unwanted gifts on ebay by getting buyers to accept very flexible and loosely worded terms and conditions of purchase, which means buyers would have very little recourse of compensation in the event of items having been ‘creatively’ described.

But there is a problem - on ebay the negative feedback from dissatisfied customers that will build up against our profile will mean that soon nobody will be willing to buy from us. Unfortunately this model does not apply to Al Hamra Estates, as they seem immune to any amount of negative feedback, and continue to market their merchandise with open-ended contracts designed mainly to protect themselves.

The matter of service charges which every investor will eventually have to face up to is just such an example of the use of ‘creative’ contracts by Al Hamra Estates. Investors may recall that very little information was provided on this matter and generally kept low profile even when questions were asked. With information gleaned from various sources, we will however attempt to summarise the possible charges that investors will have to cough up on handover of their unit.

A Single Offshore Company License Fees
The freehold within Al Hamra Village is based on a single offshore company license, plus yearly fees to be paid to the Ras Al Khaimah Investment Authority. First year charges quoted by Al Hamra early 2007 were AED 2,500 for studio, 1-bed, 2-bed and 3-bed units, and AED 5,000 for Townhouses, Duplexes and Villas

Project Maintenance Fees (figures for the first year)
These were originally estimated as AED 7 per sq ft for apartments, and now have been increased to AED 10 per sq ft. Figures for Townhouses and semi-detached duplex villas were originally mooted to be AED 520 per month, and for luxury villas type B & C AED to be AED 840 per month

Connection Charge (electricity & water)
AED 1,000 (refundable meter registration) plus AED 300.00 per KVA*(load of your particular unit) - one time payment.

Registration Fee
2% of the purchase amount on completion & full payment of the unit (one time payment to the Land Department of Ras Al Khaimah).

Visa (optional)
AED 4,000.00 per person (includes administrative fee, medical, visa, transportation, etc.

So taking a one-bed, 1000 sq ft apartment costing AED 550,000 as an example, the costs stack up as follows:

Offshore Company License Fee AED 2,500
Maintenance Fees AED 10,000
Connection Charge AED 5,000
registration fee AED 11,000

This brings the total to AED 28,500. The charge has already gone up from AED 7 per sq ft to AED 10 per sq ft, so the total figure for the first years associated charges stacks up to a whopping £4,750 for our friends over the channel (based on an exchange rate of 6.0).

Let's hope the dream that is Al Hamra Village lives up to expectation and is worth the money we will be forking out to pay the service charge.

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