Credibility - Now You See It, Now You Don't
A very good piece of investigative reporting by Asa Fitch at The National.
In 2007 with great fanfare Dubai passed a law requiring that developers set up escrow accounts to ring fence buyers' funds so they would only be used for construction and related costs on the projects that the buyers invested in.
Rather quietly and quickly the Dubai Land Department gutted the law by granting exemptions to certain master developers. Among this select group were Nakheel and Emaar as well as other Dubai World entities. The latter two have recently (three years later!) disclosed this fact. Apparently, neither they nor the DLD considered it material information an investor/buyer might be interested in knowing or have a right to know.
Rather quietly and quickly the Dubai Land Department gutted the law by granting exemptions to certain master developers. Among this select group were Nakheel and Emaar as well as other Dubai World entities. The latter two have recently (three years later!) disclosed this fact. Apparently, neither they nor the DLD considered it material information an investor/buyer might be interested in knowing or have a right to know.
A couple of quotes:
The developers of multiple projects in Dubai that are stalled spent money in this way, and now homeowners find that their investments were spent but that the projects cannot continue without new funding.
But having to comply with escrow laws could be burdensome for developers such as Nakheel and Emaar because of their obligation to build expensive infrastructure in their master developments. Emaar said in its prospectus last week that if it had to comply with escrow laws, its "business model may be significantly impaired as it would only be able to finance the construction of projects with corresponding purchase price instalments once certain construction milestones are met".Poof, there goes the last illusion of Dubai as a world class financial center.
And, no, it's not a matter of professionalism as one "expert" has it. It's much more basic. It's a matter of running a fair, honest market. When the games are rigged, one is well advised to go to another casino. When one doesn't get a fair shake (or a fair Shaykh), it's time to look to another market.
To be very clear, the central issue here is not that an exemption was given. It was that the granting of the exemption was not disclosed. Neither by the Government or the companies. There may have been what were considered at the time very good reasons to give an exemption. The problem was that buyers had no way of knowing. They should have.
To be very clear, the central issue here is not that an exemption was given. It was that the granting of the exemption was not disclosed. Neither by the Government or the companies. There may have been what were considered at the time very good reasons to give an exemption. The problem was that buyers had no way of knowing. They should have.
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2 comments:
All the hoopla about "World Standard" legal systems, financial infrastructure was always rubbish - as people are finding to their cost. What puzzles me is how Dubai Inc expect to get the show back on the road without dealing with those that they shafted so willingly. As and when developments resume, expect TV exposes and newspaper (horror) stories to warn off any new meat.
LC2
There's a sucker and a "wise" investor born every minute.
And there's the old powerful faith "This time it's different"
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