Schön Properties new payment plan brings respite to investors

After having gone through a period of uncertainty about its future, Schön Properties, it appears, has resolved to put all doubts to rest and get back on its feet.

The challenge before the Dubai-based developer was to pull itself out of a messy situation where it had to deal with construction delays and disgruntled investors. Now, in an effort to reverse all the bad press and regain its credibility, the developer is proceeding with construction on its stalled Dubai Lagoon project and is serious about its intentions to bury the hatchet with investors.

As part of this plan, the project promoters are now working in tandem with the Dubai Lagoon Investors' Committee (DLIC) and Rera (Real Estate Regulatory Agency) to expedite construction milestones.

"In the last eight to nine months, Rera has put in time, effort and energy to monitor the project. They have reassured the contractors and investors and have helped move the project ahead," says Danial Schön, vice-president, Schön Properties.

The construction delays have been attributed to a number of factors, primarily limited availability of finance, as well as the project redesign due to roadworks. "What also caused the delay was a lack of trust and confidence. There was a lack of communication from our end to investors," admits Danial.

Payment scheme

The developer has now devised a construction-linked payment plan to generate funds and is offering a 15 per cent discount to investors ready to swap schemes. The scheme, however, veers away from the seven-year payment plan where investors were required to make payments every quarter and 100 per cent upon completion. Now, those switching to the new scheme will need to pay 90 per cent of the unit sales price upon completion of the sixth floor slab.

Representing the investors, Jamal Sirhi, who heads the DLIC, says, "We understand the fact that money is being spent on the project as a community, which involves the lagoon, valve chambers, etc. We went back to Rera and they explained to us how it had been studied by an independent team. If the payment plan is coming from Rera, it's okay with us."

Predictably, some investors are not too enthusiastic about the new payment plan. They claim it is unfair to seek 90 per cent payment before MEP (mechanical, electrical and plumbing) works have been completed in the units.

"The buyers need to know about the other costs associated with real estate development, such as the land, overheads and marketing. This is a community with so much infrastructure work. We spent Dh35 million on the Dewa (Dubai Electricity and Water Authority) sub-station alone. That explains why 90 per cent should be paid when the structure is complete. It's also an easier milestone," says Danial Schön.

Construction on zones 5, 6 and 7 in Dubai Lagoon has been deferred and investors there have been given an option to convert to zones nearing completion, viz. 1, 2, 3 and 4 provided they are willing to abide by the construction-linked payment plan.

"Only five units out of 300 had been sold in zone 5. Half of the buyers in Zone 6 and a good percentage of buyers in zone 7 have swapped units and availed of the 15 per cent discount, if they have linked payment plans to construction. Customers can make their decisions based on their financial situation," adds Schön.

Meanwhile, investors in the deferred zones who wish to swap units, but who continue to remain under the seven-year payment plan, will not be given priority while selecting units.

"Our priority for the time being is to shift the most cash-affluent investors to zones nearing completion," insists Danial.

According to Schön executives, out of the 2,000 buyers in Dubai Lagoon, 50 per cent were earlier on the date-based payment plan. More than half of them have shifted to the new payment plan. Of the remaining 900 units, owners of around 200 units have shifted to zones nearing completion.

"This is a very positive sign and knowing that our buyers are backing us gives us confidence. They understand that the seven-year payment plan will be difficult to perform in this market and they have offered to expedite and finish construction as soon as possible," says Danial.

The contractor for Zone 1, Bin Sabt Building Contracting, is expected to hand it over by mid-November this year. Unit delivery will commence by the first quarter of 2011. "Bin Sabt is on schedule on Zone 1 and is in the process of reviewing quotations from suppliers and MEP contractors," says Ahmad Soliman Arif, managing director, Bin Sabt Building Contracting Company.

Transparency

Not all investors have come around to Schön's volte-face. Complaints still surface about the developer giving preference to owners of bulk units during consolidation and changes in unit specifications while swapping. However, Jamal, representing the investors, is optimistic.

"It's not easy to convert extremely angry investors into happy ones in just one day. It will take time. Rera is also on board now. People wanted to see work happening on the ground. We got word from contractors and understand what's happening. Now, we have transparency. It's no more good news or bad news, it's just news. This is what we wanted from the beginning."

Attempting to reach out to customers, the developer now posts construction updates on Facebook, Twitter and Skype. While Schön had initially planned to channel all funds into construction of residential units, it has now given in to investor demands and plans to commence work on the shopping mall as well. "Investors suggested that adding the shopping mall would add value to the community and make it more vibrant. It is now part of a separate zone," Danial explains.

Ruling out any more refunds to investors, the project promoters, however, claim that discounts would be justified to those who had bought at high prices per square foot. In projects such as Schön Business Park and its projects in Downtown Jebel Ali where units had been sold for over Dh1,000 per square foot, Schön Properties has offered discounts.

"But in Dubai Lagoon, because we sold at reasonable prices, we decide on a case-by-case basis if the unit price is unreasonably high. There is only a handful of such people in Dubai Lagoon and they have been given discounts. It was launched at Dh505 per square foot on net sellable area," Danial adds.

Admitting that refunds had been doled out to investors for a two-month period between July and September 2008 to compensate for the delay in construction, Schön executives reckon that this would come in the way of project completion now.

"The direction of all our funds is towards construction and our three contractors. We have even asked the master developer at times to wait on our land payments. All our stakeholders understand and respect this. There aren't any marketing expenses or consultant fees being withdrawn out of the escrow account," Danial clarifies.

Accountability of funds

Discounting claims of anomalies in the project's escrow account, Schön executives refer to the retrospective nature of the Escrow Law, which made it mandatory for developers to maintain a significant balance while opening the account.

"The developer is supposed to divulge how much money he has collected and the amounts allocated for marketing, management fee, etc. The law is fairly tight on developers. These accounts are audited every month and if there is any discrepancy, it gets blocked. All the money spent before the account was created has been accounted for," says Danial.

The developer had also been in the dock for sending out cancellation notices in 2009. However, these investors have now been reinstated and linked to the construction-payment plan.

"If an investor has paid only, say, 30 per cent in a zone that is being constructed (for instance Zone 3) and fails to make more payments, we give them leniency of two to three months to update their payment. If they don't, then as per contract, we will terminate. If construction is not happening in a zone, we will not terminate contracts," the Schön executive clarifies.

He, however, adds that any contract cancellations made before August 31, 2008 on the company letterhead are also valid. No transfer fees will be imposed on investors swapping units between zones. However, there could be a consolidation fee in some cases. For instance, if an investor has bought units worth Dh10 million in Dubai Lagoon and is seeking to reduce it to Dh2 million, a fee would be imposed.

"Everything is done looking at the project's overall cash flow and to complete the project as efficiently as possible. If the investor bought the unit at Dh1,000 per square foot and has paid 10 per cent, he is sure to walk out. As a developer who is responsible to all stakeholders, we must give investors some incentives, discounts or consolidation so they can stay and continue paying. Our intention is not to cancel or give some a better deal," Danial adds.