A site in Dubailand. Though some master-developers blame sub-developers for project delays, sub-developers say promised infrastructure hasn’t been delivered. For illustrative purposes only. Image Credit: Abdel-Krim Kallouche/Gulf News

Dubai: Dubai’s master-developers are starting to take a dim view of sub-developers/investors holding on to their plots without launching projects, market sources say. And if the sub-developers cannot come up with reasons justifying the “delay”, they might have to face stiff penalties, the sources add.

“Master-developers — and even Dubai’s realty authorities — do not want to see land being acquired as a speculative asset, wherein nothing is being done to develop on it,” said one developer.

“There were quite a few land acquisitions made by investors for strategic reasons — at some of the emerging clusters — when the market was starting to get into an upturn in 2011-12.

“Now, the master-developers want to see clear on-site activity taking place there and not have them lie vacant until the owner decides he is getting a good price [to sell it].”

If the master-developers remain insistent on this point, that could mean a flurry of off-plan launches in the second half of the year, irrespective of whether the wider market is in a conducive state or not.

For prospective property owners, especially end-users, that is certainly a good thing. Any uptick in launch activity will mean less room for property values to spike sharply in the medium-term.

(Given the lacklustre activity happening in the secondary market, such a possibility is quite remote as it is.) And what of the sub-developers who have to play ball with master-developers’ wishes?

“There has been talk that depending on a development-to-development basis, penalties for noncompliance could be around 20 per cent of the land value each year,” said Sameer Lakhani, Managing Director at Global Capital Partners, which owns plots at Dubailand’s mid-tier residential/commercial clusters.

“More than anything else, even the threat of such stiff fines could have a galvanising effect on launches ... or get the land owners to dispose the assets earlier than they may have planned.

“The authorities are quite clear they want the market to remain well-supplied with new projects and at regular intervals.”

But sub-developers are putting up stiff resistances where they can.

“Many of the masterplanned projects in the UAE have suffered delays since the market correction in 2009,” said Craig Plumb, Head of Research at JLL Mena, the specialist consultancy.

“The delays have highlighted the sometimes strained relationships between master-developers and the sub-developers they have sold sites to, with both sides attempting to shift the blame to the other party.

“While master-developers criticise sub-developers for delays in completing projects, sub-developers retort these delays are often due to the failure of master-developers to deliver on [the] promised delivery of infrastructure.

“In many cases, there is an element of truth to both sides of the argument. The resulting disputes only serve to delay delivery of projects still further.

According to JLL’s estimates, some 28,000 residential units were “originally” scheduled for delivery in Dubai in 2014 ... but only 12,000 were actually handed over to owners.

But Plumb issues a cautionary note on how far master-developers can “legally” go in pushing their claims.

“There is no legal framework in Dubai to force developers to act upon consents within a given time frame, the only recourse — and penalties — available are in terms of specific contractual arrangements between the master-developers and sub-developers of individual plots,” Plumb said.

“Some of these contracts do have penalty clauses ... but these have not always proved easy to apply. Particularly as they are often linked to milestones such as, for instance, the delivery of infrastructure that the master-developer themselves [may] not [have] achieved.”