The Wave, the first big tourist development in Oman & located just west of Seeb airport, is making moves to try and force some off-plan buyers to commit to their purchases in the mega-development.
Properties at The Wave's later phases - still far from completion - were snapped up in the heady days of last year, to the extent that lotteries had to be held to decide who would even be allowed to just put down a deposit. Such was the feeding frenzy people were even paying 10 to 25 thousand rials [US$ 25k-62k!] to people who simply had such a 'ticket to purchase', just to get in line to buy these properties even before they had been built.
But those days must seem an age away to all the property developers in Oman right now. Resale prices have collapsed, but then liquidity is exceptionally low (my real estate friends say they haven't registered a sale of a Wave property on the after market all year).
Right now the real estate agents Cluttons are listing 75 properties for sale at the Wave. Gulf Properties list a somewhat shocking 172.
One of many properties being offered for sale at the Wave...
The problem is that many people who bought at the Wave were only planning to hold and resell for a huge profit - as those fortunate enough to get in on Phase 1 did, with some friends of mine cashing out mid-last year and making off with 150k rials profit in 18 months. (I know, Nick Smith is on record saying that speculators were only 20% of purchasers, I'm just not sure I believe him as I know a LOT of Omanis who were buying only in the hope of a quick buck, and without hindsight, who can blame them?).
But now, the market value of any yet to be completed off-plot purchases are probably worth a lot less than the total of the remaining payments, the negative equity trap. What to do?
The collapse in the market has meant many people are not making their promised follow up payments, unless they are already in so deep it would be crazy to even contemplate a default. Economically, the best solution if you made a deposit on such a now negative equity property - even if you still wanted a place to really live in or even to rent out - is to stop making any more payments, eat your loss on the original deposit, and consider buying a different place in the after market, as that will end up costing you less than your remaining payments for the same property.
As a response to this problem, The Wave is thus taking the unusual step of offering those purchasers the ability to only pay after the property is completed, instead of having to make interim payments now as in the original sales agreement, and blaming the lack of credit liquidity.
heres the letter they sent out a few days a go - with just 14 days to respond!
RE: Amendment to Schedule Payments - XXXX
We are aware that the current adverse global financial circumstances have affected many of our customers who have bought property with us. We know that many have liquidity issues, and coupled with this, it is now more difficult than last year to arrange bank funding. This funding issue is particularly acute where properties are at an early stage of construction...
Hence we would like to offer you the following options:
1. To continue paying any outstanding invoice(s) and future invoice(s) in accordance with the provisions of the Agreement; OR
2. To pay any outstanding invoice(s) and/or future invoices(s) at the final stage subject to the terms and conditions stated in the next paragraph below.
2. It is your sole responsibility to ensure that payment of all outstanding invoices is made at the final stage as invoiced by the Developer....
CEO The Wave
Note this 'generous' offer seems to be being made only in return for them agreeing to change the sale and purchase agreement and in the process ensuring those who take the new deal become fully liable for the full payment later.
Quite clever. It forces people to make a choice: default now and loose your deposit, or, avoid default now (which no one really likes to do) but become locked in for the full payment later. It also allows the Wave's accountants to keep all those shakey sales on the books.
But they are a bit naughty not making that 'exchange' a bit more explicit. But, hey, business is business.
As the Wave is essentially Government backed, it's a reasonably safe investment in terms of completion (and has a pretty good history of being almost on time), but I personally thought it was always a bit pricey. Still, at least it's being built and some 100 homes have already been completed and handed over (albeit with a few concerns in places over changing the specifications of car garage dimensions..).
Note: there is no danger of the Wave itself getting short of cash, as they have the effective backing of Bank Muscat, which is essentially an Omani Government backed bank. They are as solid as it gets.
And The Wave might (with some justice) argue that if you really just wanted to live there, this is a great deal.