The letter from MiNC's CEO explains the company's financial situation to investors.
MiNC says that despite the land purchase being finalised in October 2006, Nakheel only actually delivered the land for construction in May 2008.
This has led to: 'A significant negative impact on the project; a doubling of construction-related professional fees and a large increase in government imposed costs.'
In addition: 'The arrival of the global financial crisis has had a severe impact on the monies MiNC has available to build Prodigy 1. We are no longer able to subsidise construction of the project; the project needs to be self-funded as originally intended.'
MiNC faces two further problems. New regulations introduced by the Dubai government have meant that the company's original economic blueprint of using finances from the whole project to fund construction on Prodigy 1 is no longer legal. This has then been compounded by the withdrawal of project financing by two local banks.
Difficult financial situation
'We are in an extremely difficult situation,' Simon Everest, Director of Operations at MiNC told AME Info. 'Banks have pulled all the finance, so we have the choice of either sitting, doing nothing and waiting it out, like some of our competitors are doing, or we need to find another solution.'
The problems have meant that though most of the units in the seven towers have been sold, and the company's escrow accounts are up to date, the project is no longer financially viable. MiNC claims that it would make a 'significant and material loss if it were to build this project' and it 'can no longer afford to subsidise this loss', according to the letter sent to investors.
As an example, MiNC is asking buyers to pay an additional Dhs326,000 on units originally sold to them for Dhs370,000, a mark-up of 88% on the original price. The developer also asks that investors pay the increase up front, with the remaining instalments as per the original terms. The charge will then go to pay for construction costs.
In return for this the company is trying to mitigate buyer displeasure by guaranteeing 8% rental returns on the increased purchase price. MiNC is also playing on the fact that, at Dhs1,000 per square foot, the units are still below market rate.
'The market is short of new buyers at the moment and as they cannot sell at a higher price, they are in effect re-selling the same apartments back to the original owners at an increased price!' an investor in the project told AME Info.
'When we spoke with their London office, and contacted their Dubai office, the only options were - give us the money we have asked for or lose your apartment and 30%. MiNC are saying that per the new law they will be able to retain 30% of the purchase price, even though we are not in default of payment.'
Responding to this comment MiNC said: 'We do not intend to confiscate all or part of clients' deposits, and have not in any way threatened our clients in this regard.'
Permanent suspension of work
The letter continues: 'The current economic climate and the impact on the property sector are unique… Events outside our control have forced us to make difficult decisions. We believe that our proposed course of action will help us meet this target . Failing this, we fear that the project will be suspended, possibly permanently.'
The response from investors contacted has been understandably negative so far, with many refusing the terms: 'If I wanted to buy an apartment at Dhs1000 per square foot back in November 2006, I could have put a little more in and bought in the Marina. As an investor in this company, I feel like I have been robbed of my savings and profit. I have looked at the market and apartments in Jumeirah Village are selling for under Dhs1000 in the current market.'
If the response by even a large minority of investors is negative then MiNC will not have the funds necessary to begin construction and those who have advanced the extra money will have their funds returned and the company will wait for bank funding to resume.
'We initiated a meeting with the Land Department to get them to intercede on our behalf with the banks,' said Everest, 'and they put pressure on them but we've had no joy. Our next move if the buyers don't accept the deal is to return the money, sit it out and wait for financing. But it is our intention to build every single one of the units.'
UPDATE: Subsequent to the publication of this article MiNC has issued a statement to AME Info stating: 'We have taken steps to reduce the premium requested from clients to a maximum of 30% or Dhs200,000 (whatever is the lower), as a handful of purchasers that bought at pre-launch prices (less than Dhs600 per square foot) have rightly pointed out that the premium requested of them was excessive.'See also:Dubai developers feel the effects of price uncertaintyDubai's off plan projects 'on hold' through lack of financingNakheel denies Palm Deira stoppage rumours