Launched in 2005, Schon Properties, was started by the 4thrichest Pakistani billionaire in Dubai.
They launched a major project with a bang, valued at 3 billion dirhams named Dubai Lagoons.
At inception, the project was expected to have 53 residential buildings, with Phase 1 comprising of 21 buildings (Ground plus 6 floors and Ground Plus 8 floors).
It was expected to have a total of 4,166 apartments.
However, today, in 2018, that dream of more than 3,000 investors has been shattered and come to a sad and a shocking end.
They had 5 projects in all: Schon Business Park, Laguna Serviced Residences, iSuites Smart Residences, Lotus Residences and Ava Designer Residences.
Now all company assets, including all land holdings and bank accounts have been frozen by Dubai Govt.
Now all company assets, including all land holdings and bank accounts have been frozen by Dubai Govt.
The Dubai Lagoons project never delivered even 1 unit over a 13 year period.
In 2017, after much crisis, a new developer was brought in and part of the above project was sold in order to deliver something.
Original contract was with a Korean company, Daewoo but various contractors changed over the years and project was even stalled after the 2009 crisis for a few years.
In May 2017, Schon Properties and Al Hamad Group started another project, iSuites, valued at 3.2 billion dirhams to deliver 2,550 hotel apartments plus 52 restaurants and 125,000 sq feet shopping mall, with a beach and a 5 acre lagoon to be delivered in the area near much touted “EXPO 2020” area which will now never get built.
In total, 6-7 billion dirhams (approx. USD 2 billion scandal) or more has been lost in this company by investors, bankers and company owners.
Aside from payment to contractors and architects, and money spent on marketing and purchase of land, it is not quite clear, at this time, where the rest of the money went that was invested by the investors.
Now the lawsuits of investors, contractors, bankers, suppliers etc. will begin.
It is very rare anywhere in the world for any Govt to seize assets of a developer even if bankrupt.
It appears that money has either been siphoned off into another project which may have collapsed or lost massive value (as was normal before new escrow laws were introduced in Dubai, 2010 onwards) or the dropping real estate values and past agreements with contractors (at higher prices of that time) have led to a massive cash crunch.
In addition, almost all the 3,000 investors have been pleading the Govt to help them recover their money or get them the promised apartments for several years.
In addition, almost all the 3,000 investors have been pleading the Govt to help them recover their money or get them the promised apartments for several years.
Just over the last few months, the case of Abraaj collapse has been in the news with a potential loss upto USD 14 billion. Owned by another Pakistani native but holding British passport.
It is also in our knowledge that the son of Abraaj owner, Arif Naqvi, is married to the daughter of the Schon family.
It could be possible that Schon has lost some cash (stuck with losses, at least, for several years until Abraaj's multiple court cases in half a dozen jurisdictions get resolved and assets in over a dozen cities get sold that are rapidly losing value) in the Abraaj fiasco.
What is interesting is that both are Pakistanis based in Dubai, both are related by marriage, both used to be flamboyant and now both have collapsed in their own glory and greed with their inability to forecast the market dynamics.
We have been warning our clients since July 2015 that some of the biggest billionaires of Dubai will go bankrupt. Almost all "billionaires" in Dubai will go bankrupt unless they are retired or have businesses overseas.
Abraaj and Schon are just 2 of such biggest multi billion dollar elephants to collapse.
There have been a few in the past but many more will go bankrupt or run away in the months ahead.
During the last crisis of 2009 in Dubai, it bankrupted about 600 odd developers (out of 798) but mostly at USD 10-50m level, ARY Jewellers and Trident Developers were the big private ones who collapsed but the current crisis since 2015 is much more broader in scope and much more long term.
Dubai's top developers have not delivered the following major projects since the 2009 crisis in which a minimum of hundred billion dollars have been lost:
- The World
- Universe
- Al Bawadi project of 100 hotels
- Thrice announced "Mall of the World"
- Palm Jebel Ali
- Palm Deira
- Dubai Pearl
- Pentominium - billion dollar building
- now we can safely add Dubai Lagoons and other Schon projects to this list.
Abraaj and Schon are just 2 of such biggest multi billion dollar elephants to collapse.
There have been a few in the past but many more will go bankrupt or run away in the months ahead.
During the last crisis of 2009 in Dubai, it bankrupted about 600 odd developers (out of 798) but mostly at USD 10-50m level, ARY Jewellers and Trident Developers were the big private ones who collapsed but the current crisis since 2015 is much more broader in scope and much more long term.
Dubai's top developers have not delivered the following major projects since the 2009 crisis in which a minimum of hundred billion dollars have been lost:
- The World
- Universe
- Al Bawadi project of 100 hotels
- Thrice announced "Mall of the World"
- Palm Jebel Ali
- Palm Deira
- Dubai Pearl
- Pentominium - billion dollar building
- now we can safely add Dubai Lagoons and other Schon projects to this list.
Since 2015, we have seen Etihad default on it’s bond trading today at USD 59, we have seen Etihad selling several of their planes along with Dubai Aerospace, we have seen major banks (Barclays, ABN, RBS, Lloyds, Soc Gen) shut down, hotels (Jormand, Richmond, Ramada, Jumeirah Beach, Panorama, Westin, W and St Regis) and restaurants (Pacha, Left Bank, Mango Tree, Ping Pong, Agency, Sass Cafe, Alfie's, Ceviche, Just Falafel, almost all Japengo) shut down, we have seen Lukoil and Yahoo shut down in Dubai, we have seen Geant and Hyperpanda supermarkets shut, Sana Fashion and Saks Fifth Avenue have shut, we have seen Lamcy Plaza mall shut, we have seen the first hospital shut down (The Medical City), we have seen the USD 14 billion collapse of Abraaj in DIFC (where hundreds of companies have shut in DIFC) and now the rapidly unfolding Dubai's existential crisis has ensnared the first top Dubai developer in 2018 (as per our target for 2018).
We are not even counting the thousands of businesses (from USD 50k to USD 2bn) who have been crushed since 2015, many of whom are either in jail or have run away. JBF RAK and Pacific Controls come to mind as the previous billionaires who ran away since 2016.
Prices of real estate are back to 2002 levels, same as at the time of launch of freehold in Dubai, while rental prices are back to 1998 levels with a massive glut of oversupply and tens of thousands of empty units.
But worst time for developers in Dubai and businesses is yet to come and unfortunately there is no solution to this crisis in Dubai.
Is there any business left so far?
ReplyDeleteWhat do you think or know about the situation of all the others, UAE etc?
Is Dubai an isolated case? Hard to imagine.
Thanks for your infos.
I never heard about this before such detailed.
Even at 0hedge.
Why are you not a contributor there?
and by the way, now I understand why nobody is commenting.
Bloggers captcha is not working for me in firefox.It is annoying as shit.
Also all the google trackers.
I had to switch the browser so this will be my last comment, sorry.
Thank you very much for your comment.
ReplyDeleteBusiness in UAE is worse than Greece, Syria or Somalia, if you can imagine that, because the biggest issue in Gulf is that once you lose a job (which is 99% of the expats) you must leave along with your family within 30-45 period and if you are a businessman (you are either going to jail due to bankruptcy) and if you can predict your bankruptcy then you simply leave everything behind and need to run away.
If any person leaves any country, especially in millions and all of them within a few years, it has a cascading effect on food, cinemas, restaurants, schools, banks, malls i.e. everything which is also a big reason worldwide but most acute in UAE due to it's 90% expat population and the 10% locals who did not spend anything on necessities like education and medical because it was always free and used their entire incomes for luxury or discretionary spending. Now even locals need to pay higher charges and fines and work 10-12 hour days and income is harder to find (lack of LLC or building rentals) hence the discretionary spending even by locals has slowed down significantly. While basics are very expensive. This is a big reason for GCC implosion since 2015.
Situation is quite grim in most countries globally except China and Philippines and maybe 1 or 2 other insulated countries. If you can clarify with your second question, then I could answer it better.
Dubai is not an isolated case. It is occurring same across all of GCC and even Egypt.
Appreciate your kind comments.
I am a contributor at ZH also. But have slowed a lot in the last several years (almost zero or 1 a year) because the commenters are mostly trash and have no understanding of economics (especially global). Between 2009 to 2014, the visitors and commenters were of much high quality. Even the posts by ZH are trashy and headline grabbers and don't provide much value except in every 10th post.
I have taken your comment seriously and have removed the captcha. I hope it works now without Captcha unless it is hard coded by Dr. Google. :)
Thanks again.
You are right, Zero is almost trash today.I read it since the beginning almost daily and do so because I havent found
ReplyDeletean alternativ so far.The comments over there arent worth reading any more.
I only scan abut some like Dubaibanker etc. :)
The situation you are describing in the Oil countries isnt percived or discussed anywhere altough I thinks it is very important.
All you hear is about Yemen war or the conflict between Quatar and the rest of the gang.
No analysis at all to see.
The implications of this downturn of the Gulf states worldwide must be serious.
If this guys cut back spending at all levels a lot of businesses worldwide will suffer.
I will look forward for more of your reports.
Have a nice day.
Thanks you again for your comment. I have disabled the Captcha but it is still not going away.
DeleteHahaha, you are better than Sherlock Holmes! Thumbs up!
Middle East spending is negative now, by their Govts, sovereign funds, individuals etc since at least 5 years, they are inundated with margin calls, selling equities, selling overseas assets, shutting down companies, issuing bonds, applying to IMF for loans etc.
Due to the lack of spending power of Middle East oil based economies and sanctions on Russia and tariff animosity with China while most countries are bankrupt due to low commodity prices for half a decade, there is no excess money anywhere and global capital flows have simply collapsed as has money velocity. This has been brutal for all equity markets (except the Top 10 companies.
Just look at banking stocks over the last decade or shipping stocks or exporters anywhere or commodity stocks etc (the core of global economy has been shattered).
Just today Etisalat (which used to be the richest company in the Middle East) sold it's Thuraya stake. Emaar shut down in India last year and last month sold it's USD 1.4b hotels and other operating assets. Etihad defaulted on bond and Italian Govt is suing them for destroying Alitalia. Dubai has shut 2 Sovereign fund entities, Abu Dhabi has merged 3 sovereign wealth entities.
It is not a collapse anymore in UAE, it's a total and complete annihilation and a massive implosion, the likes of which the world has never seen in the past and will never see again in the future.
Oh and I had do this - I am not a robot - Captcha again.
ReplyDeleteSo i dont know what you removed.
I have tried and has disabled in the settings, maybe it is fixed now. I sincerely hope so!
DeleteApologies for the inconvenience.
Please keep reading and keep sharing. Will be much appreciated and if you have any comments to redesign or something to focus on, kindly let me know.
Thank you very much for your support.
What are economical prospects for Qatar? This country seems to be quite resilient against the market odds. Mostly because of the govt spending ahead of the World Cup, but how does this look from the outside?
ReplyDeleteHello Mr Tomasz,
DeleteOur view on Qatar has been relatively positive.
Our advice for the last 3 years has been to move to Oman or after 2017 to Qatar if one can to Qatar who is being supported by major powers.
Oman and Qatar will continue to be ok despite all the mess around them.
However, the impact of currency depeg will substantially increase (though very low for both Oman and Qatar) should Saudi/UAE decide to depeg their currencies and accept yuan for oil (both of which have to be simultaneous events) and possibly to occur in the next 6-12 months as their economic conditions deteriorate further.
Overall, Oman and Qatar are much stabler than any other country in the region. Another strong reason is that Qatar has one of the largest natural gas reserves in the world. This is the reason that we have a war in Syria from where the gas pipeline both for Russia and Qatar must go and then onwards to Turkey.
Qatar is very critical in the global supply chain due to it's cash reserves and gas deposits.
It will be stable with very little external impact due to the geo politics in the region and general businesses will navigate the storm reasonably well and jobs will be more stabler than elsewhere.
Infact Qatar and Oman are more closer than ever before as on date due to Sohar airport being built, all flights of Qatar going via Oman and more common interests towards Iran etc.
That's our humble opinion on this matter.
Thank you.
Any thoughts on Qatar's economy?
ReplyDeleteHello Realworld,
DeleteOur view on Qatar has been relatively positive.
Our advice for the last 3 years has been to move to Oman or after 2017 to Qatar if one can to Qatar who is being supported by major powers.
Oman and Qatar will continue to be ok despite all the mess around them.
However, the impact of currency depeg will substantially increase (though very low for both Oman and Qatar) should Saudi/UAE decide to depeg their currencies and accept yuan for oil (both of which have to be simultaneous events) and possibly to occur in the next 6-12 months as their economic conditions deteriorate further.
Overall, Oman and Qatar are much stabler than any other country in the region. Another strong reason is that Qatar has one of the largest natural gas reserves in the world. This is the reason that we have a war in Syria from where the gas pipeline both for Russia and Qatar must go and then onwards to Turkey.
Qatar is very critical in the global supply chain due to it's cash reserves and gas deposits.
It will be stable with very little external impact due to the geo politics in the region and general businesses will navigate the storm reasonably well and jobs will be more stabler than elsewhere.
Infact Qatar and Oman are more closer than ever before as on date due to Sohar airport being built, all flights of Qatar going via Oman and more common interests towards Iran etc.
That's our humble opinion on this matter.
Thank you.