Billion Pound Dubai Property Scandal, Who’s to Blame?

Conservative estimates put the amount of money hanging in the balance in Dubai’s property scandal at around one billion pounds.  This is the figure that investors have already allegedly committed to property schemes and ventures that have yet to come to fruition, with one fifth of this sum already having been paid out to potentially less than scrupulous developers.

But in terms of the billion pound Dubai property scandal, who is actually to blame?  Was it the greedy speculators who bought and flipped and pushed the value of property through the roof, was it the over ambitious developers, or perhaps we should actually be blaming the government for failing to put adequate controls in place to prevent the boom and subsequent bust?

In this report into the billion pound property scandal we look at who’s to blame in the latest disaster story emerging from Dubai…

Before oil, Dubai was little more than a trading outpost built in the sand – and today it seems that despite its ambitions to become the biggest, most successful, grandest, most lavish and most amazing place on earth with impenetrable economic fundamentals supporting its never ending growth, modern Dubai’s foundations have actually been built on shifting sands.

When it was announced that Dubai was going to grant foreigners the right to own freehold property within certain designated areas of the emirate, the rush to buy up glittering and glamorous homes on islands shaped like palm trees and within developments boasting everything from golf courses to shopping centres was unprecedented.  Developers quickly realised that not only was demand for property in Dubai seemingly insatiable, but that the prices they were charging buyers were far too low!

The early investors bagged bargains and were quick to see how they could flip these homes back on to a market flush with hungry buyers before even having to pay out the full price for a completed property.  The beauty of stage payments for off plan property enabled thousands of people to become property investment moguls overnight – buying in at the launch of a development, putting down a holding deposit and perhaps a first stage payment, before selling on to the ever increasing numbers of green investors coming to Dubai and learning about the property market dynamics for the first time.

This pattern was rinsed and repeated over and over again, and as the floors were added on to the tallest building in the world in Dubai, so the numbers of buyers buying, selling and buying again in Dubai’s property booming landscape went up and up.  It seemed that the bubble could keep on expanding forever, with every single buyer getting rich off the back of ever increasing values of property in Dubai…but then reality bit.

Economies around the world have been shaken to the very core by the global banking scandals and overall mismanagement of debt from a personal to a corporate level – and no nation has escaped unscathed.  Unfortunately, for a state like Dubai, built on less than a stable and long history of economic robustness, and with some core problems eating away at its true potential, the global financial crisis could spell unmitigated disaster for many.

So far many expatriates contracted to work in Dubai have discovered that work is drying up and they are losing their jobs – as a result they are losing their right to remain in Dubai, and immediately, any outstanding balances they owe on anything from car finance to rental charges could land them in prison if unpaid when they attempt to leave Dubai.  Meanwhile, naturally the appeal of the emirate has faded fast, and as a result the army of waiting buyers for property in the emirate has dwindled away to nothing.  One can say at this point that things will probably improve one day, eventually, when the world gets on its fiscal feet again…but in the meantime there is something evil festering at the heart of the emirate.

It seems that of those who invested in off plan properties that have yet to even be started let alone finished, many are finding that their developers took their deposits and first stage payments and used them to either buy land for future projects, or to pay for the ongoing development of previously started sites. 

Money has not been protected and banked, it has been wastefully spent at best.  These buyers have no property in Dubai to show for their money, and yet they are contracted in to purchase a property in Dubai.  They are being held to ransom by their less than scrupulous developers who are demanding further stage payments just to keep their businesses afloat.  These buyers fell foul of immature policies and laws in Dubai and signed up to contracts where stage payments can be demanded at given points in time, rather than at given stages of the build.

So these individuals have nothing to show for their investment to date, they have bought properties that may never be built and which will certainly be worth less than they were originally sold for once the scandal that is Dubai unfolds completely, and to cap it all, if they stop paying what is demanded of them now, they are in breach of contract.  So, who is to blame?  The developers who have no intention of looking after their customers, who are claiming that sites are still viable and therefore demanding more and more money from their desperate customers?  These developers who have no morals, no consideration and no heart?  Or could it be the buyers themselves – they greedily bought into a dream that they thought could only have one possible outcome – massive profit?  Their naivety led them to avoid the warnings that sites like this issue about off plan properties, and it has left them in the situation where in many cases, life savings have been swallowed up by fat cat corporate developers in Dubai, and they have absolutely nothing to show for it. 

Or should the blame ultimately fall at the feet of the Dubai government.  They were all for reaping the benefits when Dubai was booming – but now when the emirate is struggling, are they really going to look the other way and allow this criminal situation to continue?

Well, I’m afraid it is entirely possible when you learn that in Dubai, a pregnant woman can be prosecuted for the manslaughter of her unborn child when she is in a car accident and loses her baby.  What more should we expect?  Certainly not justice, that’s for sure – and as one lawyer who works in Dubai says: - “Investors signed up to payment schedules that were in no way linked to milestones.  That’s how the market worked here, and purchasers didn’t query it because they were making so much money from property.  It’s become an issue because they are no longer making money.”  Clearly the alleged insinuation here is that buyers are to blame for their own naivety – but we would beg to differ.