Salvaging a slice of the property pie

After several years of watching real estate speculators make millions from buying and selling the contracts to unbuilt homes, I decided it was time I helped myself to a slice of the property pie. It was Cityscape Abu Dhabi 2008, the height of the property market boom, and just weeks before we were all to become very familiar with the words "credit" and "crunch". I was about to commit a spectacular piece of bad timing.

The property in question was a one-bedroom flat in the Al Muneera precinct of Al Raha Beach in Abu Dhabi, which I bought for Dh1.7 milion. The price per square foot was just under Dh2,000, which I thought reasonable given that investors where frantically snapping up properties at Dh2,500 per square foot. At first, my move seemed wise. Scanning the real estate websites, I watched myself getting richer - on paper at least - as prices for flats similar to mine climbed to Dh2m. I was further comforted by expectations from friends in the industry that prices would climb to Dh3,000 per square foot.

Rather than financing my purchase with a mortgage, I used funds from the UK to supplement my domestic salary and pay the developer, Aldar, directly in installments. At more than Dh7 to the pound, the money I transferred to the UAE went a long way. Then everything that could possibly go wrong went wrong. The most spectacular economic crash since the Great Depression caused the pound to plummet, taking a third off the funds I transferred from the UK.

With almost every dirham I earned in the UAE now being saved for flat payments, I was unable to send money home to take advantage of the currency reversal. At least property prices in Abu Dhabi were holding their value, or so I thought at the turn of the year. Perhaps they would even climb as investors put their money into the relative safe haven of real estate. Not so. With half an eye on live currency graphs and the other on property websites, I watched with increasing alarm as prices for one-bedroom flats at Al Muneera tumbled several hundred thousand dirhams every month.

As prices neared the Dh1 mark and the pound fell below the Dh5 mark, I knew it was time for drastic measures. With a 10 per cent payment looming - a whopping Dh170,000 - I headed into the Aldar offices desperately in need of a lifeline. A relaxation of the payment plan, help to secure an affordable mortgage, a lower price - anything. I casually asked a member of the company's finance team how much of the money I had already paid to Aldar I would lose if I cancelled the contract. Half of what you have paid so far, I was told.

I did the maths in my head. I had put down 20 per cent of the property's value already - Dh340,000. If I cancelled I would lose 50 per cent of that - Dh170,000. It was a huge penalty to pay, but if I bought at current prices I would have the same asset but at Dh700,000 less than the original purchase. Subtract the Dh170,000, and my "saving" would be Dh530,000. I wasted no time in cancelling the contract and scanning the property listings, this time eager to see prices going downhill. Somehow I had adapted my situation to benefit from the property crash. I was now one of the fortunate cash buyers who could take advantage in times of crisis.

And as one of the only remaining buyers in the market, I could afford to be picky. I contacted several reputable estate agents and explained what I was looking for - a one-bedroom apartment in Al Muneera at about Dh1m. As I leisurely considered and dismissed offers, I cast my mind back to Cityscape, when property buyers (including myself) frantically put down Dh5,000 reservation deposits onto units without even studying the floor plans.

After weeks of deliberation I settled on a one-bedroom apartment at Dh950,000 in the same building that I had invested in before, this time with a sea-facing view. The previous owner had completed 35 per cent of the payments, which I would have to buy out to assume ownership. Although I had sacrificed Dh170,000 as a cancellation penalty, the new property was Dh750,000 less than I had paid before. Once the transfer process had been completed and each party received their cheque, I was required to pay the remaining 65 per cent of the property's value to Aldar in stage payments.

Scanning my new payment plan for the remaining 20 months until the flat was due for completion, I was relieved to see that the payments were considerably less than for my previous purchase. No need, therefore, to study every minute fluctuation in the value of the pound. My dabbling in the property market had not reaped the rewards I was anticipating, but I consolled myself with the fact that I had saved myself from a major financial headache.

rditcham@thenational.ae