A group of buyers in the Torch, the world's tallest residential tower, have been told they will not get access to their apartments unless they agree to controversial changes to their contracts.
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Select Group started handing over units in the 348-metre-tall, Dh665 million (US$181m) tower in Dubai Marina this month. About 100 apartments have already been handed over and another 200 buyers have booked appointments, said Rahail Aslam, the chief executive officer of Select Group.
But some investors have objected to changes to their contract issued by Select last month that gives the developer rights not in the original contract.
"What they are trying to do is force us into signing away our control," said James Rooney, a UK citizen who bought a two-bedroom apartment in 2005 for about Dh1.3m. "We had a contract and now it has changed."
The amendments apply to about 275 buyers who purchased units under a long-term payment plan under which buyers had until 2021 to pay for their apartments.
The contract changes give the developer the buyers' voting rights on the homeowners association and allows the developer to take control of a unit if the buyer "defaults under any of its obligations".
The documentation also gives Select the ability to transfer sale contracts to third parties.
The changes were necessary to allow Select to move forward with plans to securitise the debt from the long-term contracts, Mr Aslam said. About 50 per cent of the buyers in the long-term plan have already signed the contract changes, he said.
"As far as we're concerned, we have no issues with handovers," Mr Aslam said. "Handovers are happening, which suggests there are no issues with the documentation."
The original contracts allowed for additional documentation to be signed before handover, Mr Aslam said. "Of course they have to sign the addendum, it's part of the handover procedure."
But the owners refusing to sign claim that is not correct. They argue that the contract can be changed only if both parties agree to it.
About 25 buyers have formed a group in London to object to the deal, Mr Rooney said.
They have sought legal advice to back up their claims.
In response, a Select legal representative said in a letter to a purchaser said the buyers would not be able to occupy their units unless they signed the amendments or paid the "full purchase price".
If buyers do not sign, "then we don't get the keys, end of story", said Ian Maclaren, a UK journalist who bought a two-bedroom apartment in 2005. "There's no hint of compromise."
The addendum is a "form of bullying that should not be tolerated", Mr Maclaren said.
"We're saying, 'you're sticking to the wording of the agreement and now when it suits you you're sticking something else in'," he said. "Would they allow us to do that?"
The group members say they are not going to sign and are pursuing their legal options.
Mr Aslam said they represented only a few buyers and insisted there was nothing egregious in the contract changes.
"They're enjoying an amazing payment plan and now they're complaining about it," he said. "I just don't get it."
The Torch passed the Q1 Tower in Australia to earn the title of world's tallest residential tower, defined as towers with at least 90 per cent of the space devoted to apartments.
About 90 per cent of the 676 apartments in the tower have been sold, primarily to buyers from Europe and the Middle East who bought them between 2005 and 2008 at the height of Dubai's property boom.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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