Project Report on Dubai Property Scam

Submitted by

Raj Kamal Guchhait

Amit Arora

Irshad Hussain

Sarfaraz Taibani

Arpit Mehrotra

A project submitted in partial fulfillment of the requirements of

Masters in Business Administration – International Business
at the
Amity international business school
Amity University, Noida
INTRODUCTION

Dubai is one of the seven emirates of the United Arab Emirates (UAE). It is located

south of the Persian Gulf on the Arabian Peninsula and has the largest population with
the second-largest land territory by area of all the emirates, after Abu Dhabi Dubai and
Abu Dhabi are the only two emirates to have veto power over critical matters of national
importance in the country's legislature. Its geographical location made it an important
trading hub and by the beginning of the 20th century, it was an important port.
Today, Dubai has emerged as a global city and a business hub. Although Dubai's
economy was built on the oil industry, currently the emirate's model of business, similar
to that of Western countries, drives its economy, with the effect that its main revenues
are now from tourism, real estate, and financial services. Dubai has recently attracted
world attention through many innovative large construction projects and sports events.
This increased attention has highlighted labour rights and human rights issues
concerning its largely South Asian workforce. Dubai's property market experienced a
major deterioration in 2008 and 2009 as a result of the worldwide economic downturn
following the Financial crisis of 2007–2010

DUBAI DEMOGRAPHICS

According to the census conducted by the Dubai Statistics Center, the population of the

emirate was 1,422,000 as of 2006, which included 1,073,000 males and 349,000
females. As of 1998, 17% of the population of the emirate was made up of UAE
nationals. Approximately 85% of the expatriate population (and 71% of the emirate's
total population) was Asian(chiefly Indian, Pakistani, Bangladeshi and Sri Lankan).
About 3% of the total population of Dubai was categorized as "Western". In addition,
16% of the population (or 288,000 persons) lived in collective labour accommodation
were not identified by ethnicity or nationality, but were thought to be primarily Asian.
The median age in the emirate was about 27 years.
Age structure
0-14 years: 20.4% (male 500,928/female 478,388)
15-64 years: 78.7% (male 2,768,030/female 1,008,404)
65 years and over: 0.9% (male 27,601/female 15,140)
note: 73.9% of the population in the 15-64 age group is non-national (2010 est.)

Population growth rate

3.282% (2011 est.)

Birth rate
15.98 births/1,000 population (2010 est.)

Death rate
2.08 deaths/1,000 population (July 2010 est.)

Net migration rate
19 migrant(s)/1,000 population (2011 est.)

Sex ratio
at birth: 1.05 male(s)/female
under 15 years: 1.05 male(s)/female
15-64 years: 2.75 male(s)/female
65 years and over: 1.8 male(s)/female
total population: 2.2 male(s)/female (2010 est.)

Infant mortality rate
12.2 deaths/1,000 live births (2010 est.)
Life expectancy at birth
total population: 76.33 years
male: 73.75 years
female: 79.01 years (2010 est.)

Total fertility rate
2.4 children born/woman (2011 est.)
Nationality
 Emirian(s) (Emirati)
 Emirian (Emirati)

Literacy
definition: age 15 and over can read and write
total population: 77.9%
male: 76.1%
female: 81.7% (2003 est.)
Dubai Property Scandal

Fake picture allegations and a member of the ruling family linked to a £428 million Dubai
property row that has touched nerves across the city.

Conservative estimates put the amount of money hanging in the balance in Dubai’s
property scandal at around one billion pounds. This is the figure that investors have
already allegedly committed to property schemes and ventures that have yet to come to
fruition, with one fifth of this sum already having been paid out to potentially less than
scrupulous developers.

But in terms of the billion pound Dubai property scandal, who is actually to blame? Was
it the greedy speculators who bought and flipped and pushed the value of property
through the roof, was it the over ambitious developers, or perhaps we should actually be
blaming the government for failing to put adequate controls in place to prevent the boom
and subsequent bust?

The Actual story………

A major property development firm with links to the ruling family of the UAE city-state,
and the firm's marketing agency, are accused by investors, many of whom are UK
citizens, of obtaining millions of pounds through the use of false construction
photographs.
After local and regional media had been alerted to the situation by angry investors,
news agencies across the city said they were silenced by senior representatives of the
Government of Dubai, as orders were issued for reports of the storm to be pulled.
Around 500 property buyers of varying nationalities collectively purchased three
planned tower blocks named Ebony 1, Ivory 1 and Ivory 2 in the Jumeirah Lakes
Towers area of the Gulf city last year from property development firm Al Fajer
Properties, at a total cost of £428 million.
The firm is part of the Al Fajer Group, ran by company president Sheikh Maktoum bin
Hasher Al Maktoum, brother-in-law to the supreme ruler of Dubai, Sheikh Mohammed
bin Rashid Al Maktoum.
But at the weekend it was claimed that Al Fajer Properties and its marketing agent
Dynasty Zarooni misled their customers into parting with millions of pounds by
presenting photographs showing construction of three buildings, purported to be Ebony
1, Ivory 1 and Ivory 2, up to the sixth storey.
In fact the photographs were of buildings on neighbouring plots. Today, the plots on
which Ebony 1, Ivory 1 and Ivory 2 are to be built, are empty holes in the ground.
"I only handed over my money because I was shown property under construction," said
UK-based Ebony and Ivory Investor's group spokesperson Moses Oye. "That's my
simple gripe. It's a black and white issue."
Mr Oye, who has parted with a little over £1 million - 20% of his total purchase price -
had made the seven-hour flight from London to Dubai specifically to chair a press
conference to raise awareness of the mess, after official government channels failed to
take action.
However, the press conference was cancelled at the last minute by the hotel where it
was to be held, citing "health and safety reasons." The hotel, Dubai's Mina A'Salam, is
owned by Dubai Holdings, a Dubai government-controlled holding company.
The conference was called to highlight a petition signed by the 500-strong investor's
group urging the Dubai Real Estate Regulatory Agency (Rera), the government body
which oversees the Dubai property market, to force Al Fajer Properties to refund the
£86 million that has to date been collected by the firm from investors in the three towers.
After the meeting was axed, news agencies were called to a neighbouring hotel to be
told of the escalating situation. But when reports began to surface on news websites,
news agencies received phone calls from senior Dubai government figures ordering
them to be pulled.
The lack of progress on the three towers is a source of deep concern for the investors.
Many real estate projects across Dubai were put on hold or cancelled as the torrent of
easy credit that fuelled rampant development in the city ran dry with the onset of the
global financial crisis.
"Whether Al Fajer are still going to construct or not is neither here nor there," Mr Oye
said. "They would not have got my money if they had not shown me fraudulent
pictures." Al Fajer Properties also declined to comment.
Fellow investor's group spokesperson Atul Patel, who has parted with £600,000 added:
"A lot of people would not have bought had they not thought the project was in an
advanced stage of construction."
The pictures also appeared in an advertising campaign in a Dubai-based national
newspaper last July, with the caption, "Shot at location on 10th June 2008. Ebony &
Ivory - Jumeirah Lakes Towers." The two page spread included the seals of Dynasty
Zaronni and Al Fajer Properties. Dynasty Zarooni also neglected to comment.
The news will further dampen the spirits of the once-booming Dubai real estate market -
a vital facet of the city's economy. Last year a number of senior executives from major
property developers across the city were arrested in a high-profile fraud clampdown as
the government sought to clean up the property sector.
With it, the global recession has brought a host of new problems. Many construction
firms operating in the city, some of which are UK-based, are owed millions of pounds by
Dubai property developers struggling with a lack of liquidity.
Among them is UK engineering giant WSP. The firm's finance director Peter Gill
revealed that the firm is owed £28 million by Dubai-based developers, some controlled
by the city's government.
Dubai's property market has been likened by some to a giant ponzi scheme, where
bigger and more grandiose projects were announced in a bid to keep investment rolling
in until the financial crisis tamed the city's galloping development.
At Cityscape Dubai, a major property exhibition held last October, government-
controlled developer Nakheel, responsible for the giant palm tree shaped islands off the
coast of Dubai, announced it was to build the world's first 1km high tower. The Nakheel
Tower - if ever built - will eclipse the current world's tallest building, Dubai's own Burj
Dubai.
Meanwhile, state-owned developer Meraas unveiled a mammoth £16.3 billion
development called Jumeirah Gardens, to be built in place of an existing residential
area in the city.
Today, the plot where the world's new tallest tower should be under construction is little
more than a sun-baked stretch of desert. Work on the Nakheel Tower was halted in
January, and work on vast swathes of Jumeirah Gardens has also run aground.
The national media blackout over the Al Fajer case is unusual even in a country gripped
by a harsh media law, and a pending new law, that has already drawn criticism for its
prohibition of free speech.
A report by the US-based Human Rights Watch group into the UAE's pending media
law, Just the Good News, Please, was published last month. "(The pending law)
includes troubling content-based restrictions on speech, draconian fines, and harsh
registration requirements," the report said.
It highlighted a number of the new law's provisions, branding them: "Not only unlawful
intrusions by the government into the right of journalists in the UAE to freely express
their thoughts and opinions on any subject of their choosing, but also an unjustified
attempt to control the independence of the media."
Words that will do little to inspire confidence in Mr Oye. "This is going to define my faith
in the country," he said. "If I'm dealt with correctly, great. But at the moment, it's not
going that way. We're in the witching hour now."

British investors are chasing a Dubai developer who has £2m of their money, reports
John Arlidge. Britons who bought property in a flagship development in Dubai face
losing more than £2m in deposits after the developer abandoned the scheme and fled
the country. Some 40 Britons have paid deposits on “off-plan flats” in the Light
House(pictured), a 15-storey block planned for Dubai Marina, one of the most popular
developments in the emirate.Emad Ayoub, 52, who has dual British and Egyptian
nationality, had sold the project on the basis that it would have been ready by last
month. So far, however, only the foundations of the 94-flat block have been completed.
Ayoub left Dubai last month, and work has stopped.

Buyers contacted by The Sunday Times said they did not know what had happened to
the deposit money they had handed over and whether their properties would ever be
built.

“We could lose our money, our flat, our future — everything,” says Roger Blakeley, 46,
from Lancashire, who has put down £90,000. “We chose Dubai because Sheikh
Mohammed (the emirate’s ruler) assured western investors their money would be safe.
It’s time for Dubai to show that foreign buyers have rights and are protected when things
go wrong.”

The “Light House Affair”, as it is known in Dubai, is the first such scandal to hit a country
that has undergone a multi-billion-pound building boom since first allowing foreign
investors to buy places there four years ago.

Problems have already emerged. Several projects are behind schedule and some
buyers claim that, in the race to build tower blocks and villas, standards of workmanship
are slipping. Prices, which have been rising by more than 10% a year, appear to be
levelling off, amid concerns about oversupply, especially of flats.
Ayoub began marketing the block two years ago with a sales brochure promising
prospective buyers that it would “add comfort, security and joy to your life”. About 90
local and overseas investors bought flats “off-plan” after seeing press advertisements.
Nearly half were British.

Buyers visited the sales office in central Dubai, handed over down payments of an
average £50,000 per flat, sat back and waited to see their new homes soaring above
the stylish marina. And waited. And waited.

In spring 2005, one year into construction, buyers living in Dubai reported the
development was behind schedule. When contacted by investors, Ayoub conceded
progress was slow and blamed unforeseen technical issues, but insisted the project was
on course for completion last month.

By last summer, the foundations of the block were underway, but progress was still
sluggish. Ayoub continued to assure buyers the building would be completed on time.
By January, the foundations were largely completed, but it was clear that the block
would not be completed by the April deadline. Then, two months ago, all work abruptly
stopped.

The first most investors knew about the stoppage was when newspapers in Dubai
reported that labourers had refused to turn up for work after not being paid. To add to
their concerns, Lieutenant-Colonel Rashid Al Jumeiri, a senior official from Dubai’s
Permanent Committee of Labour Affairs, was quoted by a Dubai newspaper as saying
that Ayoub had fled after emptying his bank accounts.

When telephone calls to Ayoub’s office in central Dubai went unanswered, buyers
contacted the police. Officers could not find the developer, and his office was sealed. A
notice on the door of the company’s office announced that it was closed “by order of
Dubai Court in favour of the Case No 361”.

Since March, the gates of the Light House site have been padlocked. The only person
there during a recent visit was Abdul Wadoob, a security guard sitting in the 40C heat in
a wooden hut with no water or air conditioning. Wadoob, who is employed by a private
contractor, confirmed that work on the site had stopped two months ago, but didn’t know
why.

The disgruntled buyers have hired Shahran Safai, an emirate lawyer, to put pressure on
the Dubai authorities to sort out the mess. Buyers are also considering a criminal action
against Ayoub for fraud.
Such legal manoeuvrings are the first test of Dubai’s investor-protection regulations and
the outcome is being watched closely by people planning to invest in the United Arab
Emirates. “There is no precedent,” says Safai. “No investors have found themselves in
this situation before.”

If they do not achieve satisfaction in the courts, the group plans to approach Emaar,
Dubai’s biggest property firm, and ask it to take over the site and finish the project.
Emaar was “master developer” of Dubai Marina but had no direct responsibility for the
Light House.Emaar last week denied any liability for the halt to the work at the site, but
confirmed the company had held “meetings with the legal representatives of third-party
investors … in the (Light House) project”.

The Sunday Times last week traced Ayoub to Earls Barton, a village in
Northamptonshire. Ayoub admitted he had fled Dubai, but said he had done so because
he feared he would be imprisoned after getting into financial difficulties.

The developer denied that he had deliberately emptied his bank accounts, but said he
ran out of cash and stopped paying his workers in March after a local bank refused him
further credit facilities. The £5m of investors’ money had been swallowed up by the
unforeseen construction snags and delays, he said, claiming he had tried to complete
work with £1m of his own money.

Kabir Mulchandani held in Dubai for multi-crore fraud

Businessman Kabir Mulchandani who in the late '90s revolutionised consumer

electronics marketing

with his innovative ideas has been arrested in Dubai in connection with a multi-crore
real estate fraud.

A senior official who is part of the investigation told TOI over the phone that
Mulchandani was in jail. "I am not supposed to reveal the details. I can only confirm that
Mulchandani is in jail,'' he said. Kabir's mother was not reachable on her cell phone.

Scores of investors have been allegedly defrauded of over $ 100 million by

Mulchandani, chairman of `Dynasty Zarooni'. At least 10 members of an `investment
club,' which last year promised huge profits from the company's preferential access to
real estate deals, have lodged complaints against Mulchandani, his Emirati business
partner, Hilal Al Zarooni, their joint venture `Dynasty Zarooni' and two other employees.

Investors say Mulchandani in March received subscription fees of $ 81,697 (Rs 40 lakh)
a month from 12 members. He promised them returns of $ 272,242 (Rs 1.3 crore) a
month after six months, or $ 1,633,453 (Rs 8 crore) in September. Zarooni is reported to
have denied any participation in, or knowledge of, a fraudulent scheme. "One hundred
per cent I deny this, there is nothing illegal whatsoever,'' he said.

A Dubai-based businessman Atul who had invested 3.5 million dirhams (Rs 4.6 crore)
for commercial premises in Jume Riah Lake Towers developed by Dynasty Zarooni told
TOI from Dubai that he had lodged a complaint after he found that no construction
happened eight months after he made the payment. "I made the payment in last April
and subsequently we were told by Mulchandani that construction to the sixth level was
complete. In December, I visited the site and saw nothing but sand. He has played a
fraud on me,'' he said.

In Mumbai, the income tax department is looking out for Mulchandani for the Rs 10
crore that he and his family owes them, Rs 6 crore of which is personally owed by
Mulchandani for the assessment year beginning '95-'96. Mulchandani's two companies,
Baron International and Baron Electronics, owe the government nearly Rs 60 crore and
Rs Rs 37 crore respectively.

Recent news related to property scam

A $2.45 million property / land scam that fleeced customers with claims that Bollywood
actress Minissha Lamba and Hollywood star Tara Reid are buying into the project has
come to light in Dubai.

UAE businessman Ahmad Al Falasi and 11 other investors face a judicial battle against
four Indians who allegedly swindled them to the tune of USD 2.45 million with
glamorous claims involving the actors in a development, according to a report today.

Al Falasi said he was swayed by the legitimate-sounding lies told by the men behind the
Santorini Development, a Greek-style cluster of apartments, villas and hotels on man-
made Al Marjan Island off Ras Al Khaimah emirate of the UAE, the Gulf News reported.

The men claimed that the two celebrities were looking to buy property on Santorini
development, due to be finished this year. The development, however, remains nothing
more than 463,321 square feet of barren desert.

Thousands of...other buyers, sellers and developers are also wading through the legal
system, attempting to pick up the pieces from the 2008 property crash, the report said.

A Dubai Court reported it dealt with 10 times more real estate cases in the year after the
financial crisis hit - 1,541 in 2009 compared to 137 in 2008, or a 1,024 per cent
increase. Most of 2009 cases, 75 per cent, were still on-going and were transferred to
2010, it said.

Meanwhile, Al Falasi's courtroom battle continues.

Three of the men behind Stallion Properties - Sanjay Jayantilal Mehta, Naresh Mehta
and Ankur Mehta - have been convicted and sentenced to jail for three years by the
RAK criminal court for seizing money from investors by trickery.

In 2008, at a glitzy launch party attended by the media, it was alleged that Lamba was
hunting for a property on the development and "finalising something very soon", while...

Reid was not far behind.

This was where Stallion Properties owner Ankur Mehta, along with partners Sosheeta
Phillip Desay, Sanjay Jayantilal Mehta and Naresh Mehta, designed glossy material
promoting the 560-unit development.

Suspicion set in for some investors around February last year when the building had yet
to start. They learnt that the development was built on broken promises and they didn't
even own the plots of land for which they were making progress payments.

Questions have now been raised as to whether Stallion Properties even owned the
land, with no title deed to show for it. Parties will discuss their dispute with a mediator
until a legally-binding settlement is reached.
References :
http://www.independent.co.uk/news/world/middle-east/dubai-property-scandal-claim-emerges-amid-
media-blackout-1691537.html

http://www.shelteroffshore.com/index.php/property/more/billion-pound-dubai-property-scandal-
whos-to-blame-10459

http://www.huffingtonpost.com/2009/05/28/dubai-property-scandal-cl_n_208513.html

http://7starsdubai.wordpress.com/2008/02/14/millions-lost-in-dubai-property-scandal-2/