Saturday 31st May, 2008
The Dubai and UAE real estate industry is booming, with movers and shakers moving in from all parts of the globe.
Windfall profits in property have inspired companies and individuals locally and from afar, to zoom in looking for opportunities. Major construction firms from countries as far away as Australia, such as Multiplex and Leighton Construction, are sewing up billion-dollar construction contracts.
With the majors have come a number of lightweights – companies and individuals with less financial substance, and expertise, that overnight are transforming themselves into property developers. They simply buy up a plot of land, have an architect design an apartment tower, and then rush to the market and sell-off, in most cases hundreds of apartments. They then get the site work done, the piling completed, and ultimately award a building contract to a construction firm. They then build the tower, and ultimately hand over the apartments to the buyers, together with a government-provided visa.
Well that is how it is supposed to work. Many developers however, despite their prowess in securing land, drawing up plans, and then marketing the apartments in their development, demonstrate little enthusiasm for the next steps.
Many projects in Dubai are stalled, some, such as the Wind Tower projects at Jumeirah Lakes, have yet to start construction, despite being sold-out off-plan, four years ago.
Unlike other parts of the world where off-plan buyers pay a 10% deposit and then pay the balance on completion, in Dubai you pay 10%, 15%, or mostly 30% within 30 days of signing up for an apartment. You used to then pay instalments of 10% to 15% after various stages of the construction were reached. In latter times, however, most payment plans require payments at regular intervals, usually every three months, despite any construction milestones being reached. In an increasingly large number of cases apartments can be almost paid for before construction is commenced.
In one recent case the Al Areifi Marina Tower at Dubai Marina was sold off-plan with purchasers required to put up 100% of the cost, in exchange for a discount on the price. The sales commenced in 2004. The construction of the tower commenced last year, and is around 16 months away from completion. In recent weeks buyers were astonished to find the developer had sold the development to an Abu Dhabi-based developer. They are now fielding offers from the original developer to buy back their apartments. The matter is being investigated by local authorities.
UK Capital Investments Group, or UK CIG, which plans to develop the Marina Star apartments tower in Dubai Marina, the Metropolis Lofts project in Jumeirah Village, and The Cavendish apartments towers in Awali City in Ajman, and was marketing other projects it claimed to be developing in Dubai and Ras Al Khaimah, is facing financial difficulties, with associated company UK Land Investments Group, or UKLI, already in the hands of administrators.
UKLI, which shared the same logo and registered address as UK CIG, has been the target of British financial regulators for some time over schemes to sub-divide rural land in the UK for resale to investors in the UK, the Gulf, and Asia.
This week the UK’s Financial Services Authority applied to Britain’s High Court for UKLI to be wound up, after investigations by the FSA, and the Companies Investigation Branch of the UK Insolvency Service. The application was successful.
UKLI’s affiliated company UK CIG sold apartments off-plan in Marina Star, a multi-storey apartments tower to have been built at Dubai’s prestigious Dubai Marina. After virtually selling out the project the construction has yet to commence.
UK CIG marketed the Metropolis Lofts twin towers in the Jumeirah Village development, a multi-billion dollar creation of a virtual suburb comprising residential, recreational, retail, and commercial elements, a year ago, selling out the project in a matter of weeks. Investors had the choice of three payment plans, the fast track program requiring them to put up 15% to book their apartments, and make four payments of 15% at 3 monthly intervals, with a further payment of 5% due this month. This means investors in some cases have parted with 75% of the purchase price of their apartments, construction of which has not commenced.
If the Marina Star, and Metropolis Lofts projects are caught up in the UKLI fall-out, it will be a major test for Dubai’s new escrow account laws, which require all pre-payments for projects to be deposited in escrow accounts, and only released for development. Ajman does not have escrow account arrangements in place, although this is believed to be about to change.
Investors in the 206-apartment Marina Star project have been strung along for more than a year with investors struggling to get telephone calls and emails answered. When they did make contact they were told there had been delays, but everything was on track for the tower to proceed. We spoke to the project Manager responsible for the construction who told us UK CIG bought the property from another developer, and the property was 75-80% sold at that time. He said there was a delay getting the land from the master developer, Emaar, and a further delay caused by a crack of the main wall of the Dubai Marina which caused the plot to be flooded. He said UK CIG managed to get work started in October 2007, and since then the diaphragm walls have been completed and piling is about to begin.
Asked if a construction contractor had been engaged, the Project manager confirmed, “No, but we have somebody, the contract is negotiated, we have a couple of snags, but we expect to appoint the company soon, and construction will commence in July or early August.”
Although the Metropolis Lofts project, comprising 550 apartments, is supposed to be under construction, with at least one agent (not the developer) currently advertising it on the basis that construction is “in full swing,” the land on which the towers are to be built has yet to be handed over by the master developer, Nakheel.
UK CIG established escrow accounts for Marina Star and Metropolis Lofts through Dubai-based MNA Partners late last year, and investors were told earlier payments had been transferred to that account. Later payments were made direct to MNA Partners. Some time this year however the escrow accounts for both projects were switched to Tamweel, reportedly the largest provider of real estate finance in the UAE. At this stage it is not entirely clear whether the Marina Star and Metropolis Lofts investors are fully protected if UK CIG’s financial situation should change, but there is a distinct possibility they are, because of the escrow accounts, and because the nominated developer in both cases is registered with the Dubai Land authority’s RERA (Real Estate Regulatory Agency).
RERA, which came into being on July 31 last year, requires developers looking to sell property off-plan to first obtain a permit from the Dubai Land Department to authorize marketing activity in connection with the sales. “This process,” says RERA, “should eliminate the threat of bogus projects and qualify developers and categorize developers in a more appropriate manner.”
Both Marina Star Limited, the developer of Marina Star, and UK CIG Developments JVS, the developer of Metropolis Lofts, are registered with RERA. The Cavendish, two towers each of 30 storeys, being developed in a different emirate, Ajman, falls outside the scope of RERA. It is understood freehold ownership and escrow account laws and other regulations similarly adopted in Dubai, are currently being drafted by the newly-established Ajman Development and Investments Authority.
In addition to the three projects now under scrutiny, UK CIG is also known to have been promoting, since at least last year, a number of other projects in Dubai and another emirate, Ras Al Khaimah. One project, Metropolis Central, to be developed on Jumeirah Village’s Central Park involves more than one tower, each of fifty floors, with a total number of apartments to be completed in the project of 2,100. The group also promoted it has the 29-storey Berkeley Square House Hotel in its portfolio, which it said is, “Set to become the last and arguably most unique luxury hotel development in Dubai Marina.”
In Ras Al Khaimah, of the Al Murjan Islands development, a smaller Palm-style project off the southern Ras Al Khaimah coastline, the group stated, “UK CIG are developing over sixty percent of this master planned holistic island development comprising some 267 hectares (660 acres) of reclaimed land between Ras Al Khaimah and Dubai.”
The group also stated The Lake Towers, a development of 30 towers in Ras Al Khaimah, was part of its portfolio.
At one stage last year UK CIG said, “Our current real estate portfolio within the UAE extends from single storey luxury developments, to large scale mega island projects. The total value of these projects stands in excess of four billion pounds.”
We have been unable to verify the existence of any of these additional projects, or any evidence that supports UK CIG’s claims.
UK CIG has been marketing its real estate projects through a number of well known Dubai-based real estate firms, and through its own offices, locations of which include Dubai, London, Riyadh, Jeddah, Kuwait, Hong Kong, Kuala Lumpur, Islamabad, and New Delhi. The New Delhi office of UK CIG is operated by UKLI Real Estate Private Limited.
The founder and sole shareholder of UKLI is 34-year-old Baljinder Chohan, or more generally known as Bally Chohan, who until recently was described on the group’s Web site as the Chairman of UK CIG, and prior to that, the Executive Director. The company nominated for RERA registration for the Marina Star project is Marina Star Limited, and the contact is B. Chohan.
When Moore Stephens resigned as auditors for UKLI last year, in their resignation letter, which is on the public record, they voiced concern at a loan in excess of approximately half-a-million pounds to Chohan, which they said was “unlawful.” They said in the months after Chohan resigned as a director of the company the loan almost doubled. The auditors also expressed concern at other multi-million-pound loans to associated companies in the UK and overseas, including a loan to one company which was insolvent. Moore Stephens criticized the running of the company, the loans, the fact that the directors appeared to have no involvement in the business, and that transactions with various companies, and Bally Chohan, were dubious, in that they had no commercial rationale, and they did “not appear to be in the interests of the company.”
UKLI responded to the auditors resignation by saying it “came as a shock.” In a statement UKLI said the loan to Bally Chohan was in fact a dividend as he was the sole shareholder of the company. Loans to overseas offices were described as setting-up costs not loans, but have since been switched to loans. In the company’s explanation, it said, “Due to the success of UKLI in the UK market, the shareholder (Bally Chohan) made decisions to expand the model overseas. When UKLI decided to open its overseas offices these were on the assumption that these offices would be branches of the UK operation.” UKLI said it felt it had a good working relationship with Moore Stephens until their resignation, and relied on their advice in moving forward. The company has since appointed new auditors, Hillier Hopkins.
Mr. Chohan, who lists his residential address as Al Majara 1, at Dubai Marina, was disqualified for four years by the Companies Investigation Branch of the UK Insolvency Service, in December, following High Court proceedings in London which concluded late last year over a Shariah law compliant property investment fund Mr Chohan established, for which he planned to raise one billion pounds. It was alleged, and ultimately found by the High Court than in an application to a Saudi commercial bank for funding, Mr. Chohan “falsely inflated figures concerning the value of projects that the company’s executive management had been previously involved in.” In many instances the value of projects had been inflated by a factor of 10. The proposal claimed there was an impending partnership between the fund and an NHS Trust, which the court found to be “manifestly untrue and misleading.” It also found a list of the executive team members of the trust included false names. Mr. Chohan’s CV, which appeared in the proposal to the bank was also found to contain “misrepresentations and some outright lies.” Mr Chohan claimed he held an MBA from Henley Management College, which he didn’t. He also claimed to have been a Communications Director at British Airways, which the High Court found to be untrue. The Companies Investigation Branch petitioned that the fund be wound up. The petition was successful.
With sleek glossy brochures and photos, the marketing of Metropolis Lofts went off without a hitch. “Whether you live and work in Dubai or are looking for a haven to escape to, Metropolis Lofts offer a new kind of modern living. Its environment is one that is contemporary in design and cosmopolitan in lifestyle,” the marketing brochures and Web sites gloated.
“Metropolis Lofts are more than just Dubai apartments, they are modern environments designed with modern living in mind. Arranged over two stunning towers, each with 29 floors, these sleek modern apartments offer a new kind of living,” the group’s marketing said.
After paying hefty upfront amounts investors were promised contracts once their payments exceeded 25% of the cost of their apartments. Some contracts were provided to investors by Berkeley Estates legal department. This week telephone callers to the number listed on the letters attaching to the contracts were greeted to a recorded message from Deloittes, advising they had been appointed joint administrators of UKLI.
Berkeley Estates is the trading name of Ber Estates Limited, registered in England and Wales under company number 06185545, having its registered office at 18 Soho Square, London W1D 3QL. We were later to learn Berkeley Estates are the marketing agents for UK CIG.
On the Berkeley Estates Web site the Marina Star, Metropolis Lofts, and The Cavendish, projects are still being promoted. A link on the home page directs visitors to a UK CIG page heavily promoting the projects. The customer services number promoted on the page when contacted received a recorded message saying the number was not in service.
The Web page says the Metropolis Lofts concept design “has been approved,” the soil survey is “complete,” and the “site delineated and fencing and sign boards approved.”
The site also makes much of the appointment of Edwards Covell Architects by UK CIG to “oversee all architectural design issues on our Dubai projects.” The Edwards Covell Web site lists its current projects as Metropolis Lofts, Metropolis Central, Berkeley House Dubai, Ras Al Khaimah “a 30 tower residential development,” Al Marjan Island “a 30 tower residential development,” and The Star of India, in Mumbai’s Financial City. It would appear UK CIG is, and has been, the architectural firm’s only client.
Much attention is also given on the UK CIG Web site to the master developer of Jumeirah Village, where Metropolis Lofts and Metropolis Central, are proposed to be built. Nakheel is not only the master developer for Jumeirah Village, it is behind the major Palm projects including Palm Jumeirah. It has no association with the UK group.
UK CIG appears to have no experience in property development. Its skill appears to have been in inducing investors to part with their money on the promise they would be able to deliver. In this they have been an outstanding success. None of the company’s literature makes any reference to any property development being commenced, let alone completed. The executive team profile describes the company’s executives as having extensive experience in telecoms and fund-raising, but no credible experience in property development.
Associated company UKLI has been successful in promoting UK land sales to investors, on the promise that rezoning will see the value of those land plots appreciate. In its six years of operation however it has had zero success in having any developments rezoned. Meantime it has pocketed monies up to thirty times what it paid for rural land, prior to strata-titling it, according to London’s The Independent newspaper.
The London newspaper uncovered that UKLI was buying rural land for 3,500 pounds an acre, and then sub-dividing it into one-eighth of an acre blocks and selling them for between 15,950 and 17,050 pounds. After acquiring 180 acres in Laddingford in the UK in March 2004, The Independent said UKLI had sold half the newly-created lots for an estimated 3 million pounds. The agricultural land was on a flood plain and following legal action by the local Council, the new owners were prevented from even marking out their plots.
A spokesman for UKLI said at the time investors buying the plots “are taking a 25 year view on the investment potential of their land.” After The Independent published its findings, the company began offering 10-year money-back guarantees, in the event their land was not rezoned in that time. To enforce those guarantees buyers will now be looking to the company’s administrators, who in recent weeks have assessed the total number of plots of land sold by UKLI to be “approximately 5,000.”
The FSA has finally decreed UKLI’s activities have been illegal, as they constitute “the operation of an unlawful Collective Investment Scheme.” The FSA, in a recent statement, said it also had “serious concerns as to how the company promoted its activities to the public.”
We contacted the office of Lee Manning and Carlton Siddle of Deloitte & Touche LLP, who were appointed Joint Administrators of UKLI last month. A spokesman said the firm was looking at other activities of UKLI, but stressed that only UKLI was in administration. Deloittes, he said, had been appointed by UKLI’s bank after the company defaulted on a loan. The UKLI offices were shut down by the administrators. The spokesman confirmed other companies located in the main office had relocated. Asked if the bank had any exposure to other companies in the UKLI group, the Deloittes spokesman said, “No.” The administrators are however likely to probe the loans made by UKLI to associated companies.
One puzzling aspect of the UKLI collapse is that its activities have been well known to UK regulators for some years through The Independent and other media publications coverage of its schemes. To have branched out into foreign markets and latched on to significant property developments in booming Dubai and neighbouring Ajman and Ras Al Khaimah, is quite a concern. None of the group’s companies was authorized by the FSA, so it appears the group has been more regulated in Dubai than in its own country.
Even now an affiliated UKLI company, UKLII, or UK Land Investments International, continues to carry on the UKLI activities, but not to UK (or US) investors. On its Web site the group says “The products of UK Land Investments International is solely for International clients based in the GCC, Middle East, Canada and Asia. The products of UK Land Investments International are not to be marketed to persons in the UK or the USA and as such do not fall under the jurisdiction of the FSA, OSC or the SEC.” The international offices for UKLII are the same as those for UK CIG.
Efforts were made this week to obtain a statement from the offices of UK CIG in Dubai. Some telephone numbers we obtained directed callers to recorded messages asking them to leave a message and somebody would call them back. We did speak to an employee on a mobile number we were able to obtain. She said the Dubai office was finding it difficult to transact business over the past three weeks as the UK office was in the process of moving to a new location. She gave us the number of the new office. She said she would also speak to one of the directors and ask them to make contact. We asked if Bally Chohan was involved in the company, and the employee indicated she was not aware of the person. On Tuesday we telephoned the number of the new UK office for UK CIG and it was answered by a recorded message asking us to leave a number. The message did not disclose the name of the company we were calling.
We subsequently telephoned the number listed as the contact number for the RERA approved developer for the Metropolis Lofts project, UK CIG Developments JVS in Dubai. We were asked to speak to the PA for the director on her direct number. We asked whether Bally Chohan worked for the company and the answer was, “Yes.” We asked in what capacity and the receptionist responded that she was not in a position to advise us and we should contact the director’s PA. When we telephoned the number for the PA we received a recorded message welcoming us to Berkeley Estates, “the marketing agents for UK Capital Investments Group,” and thanking us for “viewing our advertisement on television,” and advising all consultants were busy and we should leave a message, and somebody would call us back.
On this occasion we did not leave a message.
Later that day we received a call from a spokesman for UK CIG in Dubai. He said UKLI was completely separated from UK CIG. The spokesman said the land-banking activities engaged in by UKLI had been brought to an end by legislation brought about by the FSA. The spokesman said the activities of UK CIG were completely different. “All funds with UK CIG are treated totally differently. All our projects are regulated with RERA, they go over everything A to Z, we share with them all our cash flows, they look at absolutely everything,” he said. Asked about Bally Chohan he confirmed he was part of UK CIG, but questioned whether he was the sole shareholder.
Asked about UK CIG’s lack of experience in property development, the company’s spokesman said, “It’s pretty easy to build a tower. You would have to be pretty stupid to mess it up.” The spokesman, who began his career with UKLI before moving to Dubai three years ago, and will have spent 5 years with the group in August, went on to explain professional engineers, and construction contractors would be engaged for the construction. “I have a lot of faith in the management and the company. I have invested in these projects myself,” he said.
There are many companies such as UK CIG fossicking out opportunities in the rich-Dubai market. How many of them will be left standing, and how many towers will be built by them, remains to be seen.
A diverse spread of developers, large and small, has seen around forty towers, and villa complexes, developed at Dubai Marina, and a similar number is nearing completion in the nearby Jumeirah Lakes. Dubai Properties completed forty towers in the adjacent Jumeirah Beach Residence project last year. Development is mushrooming across Dubai. There are now four major Palm projects (Palm Jumeirah, Palm Jebel Ali, Palm Deira, and Palm Universe). Construction has yet to gain traction in Jumeirah Village, however it is well underway in Dubailand, The World, Silicon Oasis, Dubai Maritime City, Business Bay, Arabian Ranches, Burj Dubai, Jumeirah Islands, Discovery Gardens, International City, and other developments. There is also Dubai Waterfront, and this week The National reported that tenders will soon be called for companies to bid for the main construction portion of the $11 billion Arabian Canal development, one of the most ambitious projects in the emirate’s history.
The Arabian Canal, which at 75 kilometres will be one of the world’s longest man-made waterways, will flow from Dubai Waterfront, passing east of the planned Dubai World Central project’s Al Maktoum International Airport, before rejoining the sea close to Palm Jumeirah. Six metres deep and 150 metres wide, it will eventually be home to an estimated 1.5 million people, The National report said.
Even Donald Trump has stamped his seal of approval on the UAE real estate market. Trump Tower is now under construction on the Palm Jumeirah. On Tuesday Trump met with Dr Sulaiman Al Fahim, CEO, Hydra Properties, “to explore real estate and business opportunities in Abu Dhabi,’ the company said in a statement.
Mr Trump was accompanied by Ivanka Trump, Eric Trump, and Donald Trump Jr. ‘It is quite a thrill to be here in Abu Dhabi and see all the developments in full swing. We are witnessing outstanding progress that is taking on a full speed like no other in the world, and entering the active real estate scenario in this emirate is definitely something that we are looking into,’ Ivanka Trump said.
No doubt there is much success awaiting those prepared to invest in the Dubai and UAE property markets, however investors need to be aware that not all will necessarily go to plan. There are undoubtedly going to be some hiccups along the way.