Demand Of The Credit Notes In Dubai’s Property Market DeclinesMonday, May 14, 2012
 Sources say that Dubai property credit note market is slowing done, since the discounts being offered on the credit notes have dropped significantly. Credit notes flooded Dubai market when hundreds of property projects were cancelled and their investors were issued credit notes on huge discounts. Now the discounts on these credit notes have dropped by as much as 40%.
Stuart Raine from Cluttons says that when several property projects were cancelled in Dubai, the demand of credit notes was high. Now the situation is not the same, since the discounts are tiny which have lowered their demand in the market.
Many real estate agencies in Dubai are no longer dealing in credit notes due to a slash in discount rates. One of the agents, who sold above 300 credit notes during 2009 and 2010, says that it is risky since you buy on the power of attorney and nobody can ever be sure about the developers’ day to day plans. He also says that meagre discounts along with this risk hinder them to sell credit notes.
According to sources, property prices increased in Dubai when foreign investors were given freehold ownership rights across many developments. Property prices rallied almost 80% between 2007 and mid 2008. As per RERA, 217 property projects have been cancelled in a two year review of the industry. On the delay and cancellation of various projects, Emaar and Nakheel issued credit notes instead of cash refunds to investors.
The chairman of Nakheel, Ali Rashid Lootah, says that Nakheel has settled its AED 6.6 bn of claims on account of the halted property. Buyers are offered credit notes (that can be redeemed after 5 years) and alternative homes which are nearly complete. Agents started selling these credit notes in secondary market and earned up to AED 1 million annually. Now since the demand has dried up, the commissions have also shrunk to AED 100,000.
The credit notes of Nakheel are being offered at a discount of around 15%-17% on a website. Sources at the HRE also say that they used to sell credit notes with 60% discounts which have now dropped to 20%. This shows that the discount structure on these credit notes has really changed.
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