There is a definite hint of schadenfreude about Dubai's financial turmoil. All those investors buying into a glittering desert city, that crumbled to dust – more fool them many will think. Where else in the world would you see plans for an air-conditioned beach or a glut of six and seven star hotels? However, the situation is no joke for investors who aimed to make a small fortune selling off-plan properties or those who simply wanted to live or retire in the sun. Property prices have fallen 50 per cent from their peak, leaving the developments they bought into left unfinished, and the companies they trusted their life savings with nowhere to be seen.
Last month's announcement by Dubai's main property and investment company, Dubai World, that it couldn't make payments on $25bn (£15bn ) of debt sent financial markets reeling across the globe. And while this week's bail out by Abu Dhabi's government to the tune of $10bn was welcomed, the situation is still uncertain. The downturn was a culmination of a problem that has been brewing for some time. Over the past year, the Dubai property bubble has burst, plunging thousands of investors into financial ruin.
"I did my homework and made a rational decision to invest in Dubai for the long term. I wasn't a speculator," says Rob Thomas from London. "The government regulatory system looked watertight, but now that everything has gone wrong no one's interested."
In 2007, Thomas paid a £30,000 deposit on a apartment in Bermuda Views, a luxury development in Dubai Sports City. The project was due for completion by early 2009 but, two years on, work has barely begun. "I discovered that the project had been stopped and the sales office closed," says Thomas. "I have a contract stating I'm owed a refund if the builders default but, despite chasing it through Dubai's real-estate regulator, I've got nowhere."
Like many investors, Thomas trusted claims that development was regulated by the Dubai government. He believes this gave credibility to the boom and made buyers feel secure enough to invest. "I can't bear the thought of losing my money. All I can do is chase repayment, or hope the developer finds a way of completing the project."
Thomas wants to join one of several action groups that have been formed by investors to fight their cases in court. They hope that pressure of numbers may force Dubai's government to admit who is to blame for the mass abandonment of building projects and where the money has gone.
In addition, there's the issue of escrow accounts, which were supposed to have protected buyers' funds until properties were completed. In many cases, the money seems to have vanished along with the developers, and buyers are being stonewalled when applying to the authorities for details.
"Developers are refusing to return the money," says Jeff Kershaw, a retired lawyer who has taken up the case for investors who bought into properties being built by one Dubai property company. "One could say some developers are guilty of fraud. People have lost on average £60,000, and, in some cases the development hasn't been started, despite being scheduled for completion this year."
The lack of transparency has been used by some companies to their benefit, according to Simon Palmer, spokesperson for the Dublin-based Dubai Action Group, set up by Irish investors. The group is looking to recover funds paid to sales agents, which also bought into the The World, who they claim mis-sold properties before going into liquidation.
"Several developments have not been completed, and some investors have lost as much as €600,000 [£543,000]" says Palmer. "The agents say we need to take the case up with the developers, but we believe the agents are also responsible, and some agents were shareholders in development companies. The problem is that construction was sub-contracted to different firms, so it's difficult to get answers."
Palmer points out that investors were often advised to put money into Dubai by financial advisers and banks, and that these companies are now also suffering huge losses. "If even the banks got sucked in, what chance did ordinary investors have?"
The strength of the group's claim means that the Irish government is backing it and is hoping to secure a change in the law that prevents a class action being brought in the Dubai courts. However, Palmer is one of a number of people and investors who claim that Dubai's government the Dubai government's backing of development means there could be a conflict of interest.
"I think the Dubai government got in over its head," says Tony Hines, Dublin a businessman who lost over £175,000 on un-built apartments he was planning to use as a home and business premises. "They made up the rules as they went along and it got out of control. This is a disaster."
His sentiments are echoed by Alan O'Neill and his wife Karen, who used their savings to invest in four properties. They lost over £350,000, with three properties unfinished and one delivered two years ago but without title deeds, which means the couple can't legally take possession. O'Neill says he has lost everything; the worry keeps him awake at night.
"I thought it was a fantastic opportunity and told it was all backed by the government, that the escrow system meant my money was safe," he says. "Now no one can say where my money has gone. I'm pinning my hopes on joint legal action, the Dubai government needs to stand up and be accountable."
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