Dubai real-estate anti-corruption legal fights return to the fore



Two major corruptions legal cases related to real estate were brought to the fore in Dubai.


Dubai’s public prosecution has charged Mohammed bin Kharbash, former minister of state for finance with embezzlement and “damaging state interests”. He will be sent to trial after an investigation into events at Deyaar, the real estate unit of Dubai Islamic Bank. It is claimed that bin Kharbash, former chairman of Deyaar, had allegedly helped Zach Shahin, the developer’s former chief executive, to seize company money. Mr Shahin, a US national detained by Dubai’s authorities last year, will also face charges of alleged bribetaking.


Mr bin Kharbashis the most high-profile figure to have been charged in connection with an extensive 15-month graft probe into state-linked developers that has seen at least 25 executives arrested.


Trials have already started against other executives at Dubai Islamic Bank, in which the government holds a 30 % stake, as well as developers such as Sama Dubai, part of the Dubai Holding conglomerate. Prosecutors are still deciding when the Deyaar cases against 12 individuals of various nationalities will go to court.


Mr bin Kharbash relinquished his role as chairman at Deyaar and Dubai Islamic Bank last year, while also leaving cabinet in a February reshuffle near that time. Charges of alleged bribe-taking have also been brought against two UAE nationals, one of whom is Saad Abdul Razak, the former chief executive of Dubai Islamic Bank and a Deyaar board member, who was working for a government holding company, Investment Corporation of Dubai, when he was detained last year.


In a separate development, a Dubai court postponed a US $1.9 billion lawsuit by an Iranian national against members of the Dubai ruling family over an allegedly lost property investment “to give the defense time to prepare”. Lawyer Hussein Al-Jaziri asked for a “long period of time to respond to the case,” but the judge set 4 May 09 as the date for the next hearing. No one represented the defense during the first hearing, on 11 March 09.


Iranian Shahram Abdullah Zadeh claims he invested US $ 1.9 billion dollars as the sole capital of a company, Al-Fajer Properties. Under United Arab Emirates law, only UAE and Gulf citizens may register property firms, and ruling family member Sheikh Hasher Maktoum bin Jumaa Al-Maktoum is listed as the owner. Zadeh claims he was the only investor with Maktoum only providing his name for company registration purposes.


Sheikh Hasher is a brother-in-law of Dubai ruler Sheikh Mohammed bin Rashid Al- Maktoum. Also named in the suit are his daughter, Sheikha Maryam, a partner in the company, and son Sheikh Maktoum, who was made president of Al-Fajer after Zadeh was sacked. Their names were only made public on Wednesday. Zadeh said he was detained by Dubai police at the time he was dismissed last year and held without charge for 60 days, and that his passport was confiscated and is still being held without explanation.


(9 April 2009)



Analysis and forecast (↑ increasing risk)


Dubai’s real-estate sector, the main driver of the emirate’s economic boom after 2003, has been hit with a number of corruption cases. The first came in the second half of 2008 and involved a number of high profile entities owned or affiliated to the government. The extent of the corruption charges and the high profile of the companies and individuals involved have contributed to eroding confidence in the real-estate sector and the economy generally. With the recent crash of the real-estate market, investors are more careful about investments they make. Both cases will contribute to further shaking the confidence in the real-estate sector, particularly for off-plan properties that have constituted a large proportion of the real-estate market. With such high-profile cases, investors will be more reluctant to invest in off-plan properties, even with developers that have not been directly affected by the corruption cases.


While the case against the former minister gives some degree of reassurance about the independence of the judiciary, the case against members of the ruling family will be the real test. The way that the case has been handled so far does not contribute to creating confidence in the legal structure of Dubai.


Sources confirm that there are well over 500 legal cases involving real-estate disputes in Dubai and that the authorities are struggling to cope with the number of complaints being made. Without a speedy, thorough and independent resolution of those cases, it is likely that a restoration of confidence in the Dubai economy will be patchy.



Reports of growing extent of expatriate exodus from Dubai



Half of 2009 summer tickets booked in the United Arab Emirates, were one-way tickets, sources in airline companies revealed. The sources said to the Kuwait News Agency (KUNA) that many parents booked one-way tickets to their home countries for their families, while booking two-tickets for themselves. While no breakdown was given on which part of the UAE the expatriates will be leaving from, it is thought that the majority will be leaving Dubai.


Expatriates, who form over 80% of the population of Dubai traditionally leave to their home countries in the summer, and return in September at the start of the school year.


(7 March 2009)



Analysis and forecast (↑ increasing risk)


The recent reports carried by the Kuwait News Agency confirm predictions by various analysts on the expected population drop in Dubai as a result of the economic crisis. Dubai has been particularly hard-hit by the crisis. With about 60% of construction activity, which together with real-estate form the back-bone of the Dubai economy, halted, a large number of expatriates have been made redundant. In addition to those, many who have not been made redundant and with families here, are planning to send their families back to their home countries at the end of the school year, rather than have their children start another year. In addition, redundancies have been reported in other sectors including banking and retail.


The recent news adds to the gloomy outlook for the Dubai economy. With the dependence of the economy on real-estate, an exodus of expatriates will result in a massive drop in the value of property, particularly that more real-estate space is expected to be released onto the market in the coming months, as construction projects are completed. This drop of population will result in creating even further supply of real-estate, starting a cycle of continuous drop in prices.


Political Capital predicted a drop of between 14% and 28% in the population of Dubai in 2009.