Investors still fighting for answers over long-stalled Dubai Pearl

What could have been: Building work on the ambitious Dubai Pearl development has stalled. (Photo: Dubai Pearl)

For Ellis Quinlan, Dubai Pearl offered the chance to invest in an elite property development in the world’s hottest real estate market.
She and her fellow Irish investors pooled their savings, from early 2008 paying more than 10 million dirhams ($2.72 million) for four residential units in the multibillion-dollar Dubai scheme. Nine years later they and hundreds of other buyers have nothing to show for their money aside from a near-decade of anxiety, despair, and frustration.
Today, Dubai Pearl’s quartet of towers rise only a few floors from its prime site close to the city’s Al-Sufouh Road and the world-renowned Palm Jumeirah. The project was supposed to be home to 29,000 people, but construction work stopped years ago, and investors are desperate for answers from the developer and Dubai’s authorities as to how they can recoup their money.
“We invested in Dubai previously and made some good money, so wanted to invest in another project and unanimously agreed on Dubai Pearl,” said Quinlan, an accountant from Kildare.
“One of my original 10 clients has gone bankrupt and the others have had to sell other assets — in two cases their family home — to settle debts that were supposed to be covered by the Pearl investment. I have endless sleepless nights.”
Omnix Group unveiled Dubai Pearl as an $820-million project in 2002, but it struggled to make good on its plans and Abu Dhabi’s Al-Fahim Group took control, re-launching an expanded development in 2007.
Al-Fahim family members, who have been close to Abu Dhabi’s ruling family for generations, and Santhosh Joseph, Pearl’s chief executive, are shareholders in the scheme that was supposed to be completed in 2010. Joseph is the chief executive of Pearl Dubai FZ LLC, a consortium of investors led by the Al-Fahim family.
Dubai Pearl has long been listed as under notice for cancellation on Dubai Land Department’s website.
In 2014, Pearl Dubai said it had sold residences, serviced apartments and two 5-star hotels to Hong Kong’s Chow Tai Fook Endowment Industry Investment Development (CTFE) for $1.9 billion. The deal seemingly never materialized.
Joseph, who once described himself as “the best mind in real estate” in a YouTube video, has at least communicated with some of the hundreds of disgruntled investors, telling some last November that a deal with a new developer would be agreed by the end of 2016 in which investors would be eligible for a full refund.
Investors said Joseph subsequently told them a deal with an American developer was close to conclusion, but no official statement has been forthcoming.
Instead, government officials are understood to consider Dubai Properties — which, like TECOM, is a unit of Dubai Holding — the most probable candidate to take over the project.
Joseph, Al-Fahim Group, Dubai Land Department, TECOM and Dubai Holding all failed to provide comments for this report.
Investors are skeptical as to whether the Pearl’s owners can make good on their promises. As part of the cancelation process, Crowe Horwath audited Dubai Pearl’s finances in April 2016, which showed that as of the end of 2015 the Pearl had accumulated losses of 2.5 billion dirhams, assets worth 4.27 billion dirhams and liabilities to the tune of 6.22 billion dirhams after it allegedly breached rules limiting spending on marketing and management expenses.
“Pearl does not have enough cash/bank balance to pay off liabilities and to settle court cases,” according to an official company letter accompanying the 2016 audit. “Pearl is currently working to raise investment from (a) potential investor either in the form of (a) loan or equity.”
Dubai regulations state investors are supposed to be refunded from a project’s escrow account within 14 days of a project’s cancellation. A developer has 60 days to reimburse buyers if there is a shortfall between money owed to investors and the escrow funds — failure to do so requires the regulator to “take all necessary actions” to secure buyers’ rights, which could include legal action.
The net value of units sold by Dubai Pearl was 5.89 billion dirhams, while it took net payments of 1.56 billion dirhams from 390 investors. It paid out 1.7 billion dirhams in land, construction, marketing, and management expenses that left Dubai Pearl with a net cash balance of minus 137.5 million dirhams.
Dubai Pearl originally agreed on a price of 997.8 million dirhams for the land, paying 828.3 million dirhams. But TECOM hiked the land value to 1.91 billion dirhams in 2010, the accounts show, also telling Dubai Pearl in 2014 it could be converted to freehold for an additional 1.6 billion dirhams. Dubai Pearl, which did not inject any equity into the project guarantee account, also owes 410 million dirhams to the previous owners.
The prospect of having to pay this increased land price and meet the current owners’ obligations to investors and other creditors has raised doubts as to whether the project would be financially viable for a new developer, especially with Dubai property prices in steady retreat since mid-2014.
“Perhaps they will have to wait for the market to improve and the price per square foot to go up before it is feasible,” said a foreign-based investor who bought into Dubai Pearl in 2007.
Dubai’s courts have provided little recourse for buyers, with the few that won rulings against Dubai Pearl still awaiting payment years later.
Some investors want a seat at the negotiating table with any prospective developers, rather than just being informed of the final outcome of talks. They argue it was their money that paid for the land and as such, they should benefit from its increased value.
“Like every investor, I am really concerned whether we are ever going to see anything. With hindsight, I would not have gotten involved with a new private developer with no track record, that was not reputable and well established,” one investor said.
“One assumed a project of this magnitude would have substantial backing. They promise there will be some news next month, or two months, or three, and it has been going on like this for years. There is no transparency, no clear information from TECOM, the Land Department or anybody. Investors really do not know where they stand.”