Property investors and developers tied up in the troubled Dubai Lagoon project have reached a stalemate over how to move forward, with each blaming the other for the lack of progress on site.

The AED3bn ($817m) mixed-use development, which has faced a series of difficulties since its launch in 2005, remains strangled by liquidity woes and is still some way off completion, with no firm agreement between parties on how to speed up construction.

“The project is moving, it’s not on hold, but it’s moving very slowly because of cashflow,” a source close to the project told Arabian Business. “The contractors are not being paid. There is payment but it is delayed.”

Investors whose apartment blocks remain at basement level or below say they are losing faith in the project, which was originally set for completion in 2008.

They claim to have received few updates from developer Schön Properties on the development’s progress, and are reluctant to make further payments until the pace of building picks up.

“They [Schön] do not communicate anything, they send out a newsletter possibly once every six months,” said one investor, who asked not to be named.

Documents seen by Arabian Business show how the investor purchased a property in Zone 2 of the development, and has paid more than AED307,000 (63 percent of the purchase price). A construction update on the developer’s own website says just the basement level of Zone 2 has been completed.

“If you go to the site, there are about two guys digging a hole, it’s just ridiculous. There’s supposed to be lagoons and pools and walkways, but no one can live on it, it’s unliveable,” the investor said.

“I can’t afford to walk away. It’s very serious. I actually wrote to the [UK] prime minister [about it] and got a letter back last week saying they’ve passed it to the foreign office. I said I had been treated disgustingly and no one seems to want to do anything.”

Another investor, who also asked to remain anonymous, is similarly frustrated. Documents show he bought four apartments in Zone 6 of the development for a price of AED2m, laying down a deposit of more than AED820,000.

“They haven’t started work on the apartments yet,” he said, “and they haven’t [given us a completion date]. They keep on promising things, but nothing has been happening.”

When contacted by Arabian Business, Schön Properties – whose slogan is “We’re listening. We’re building.” – said the project continues to make progress, but is being held up by overall financial conditions and buyers failing to make timely payments.

Company vice president Danial Schön urged investors to switch from seven- or five-year payment plans to construction-linked schemes in a bid to fast-track delivery.

“Dubai Lagoon is a viable, feasible development even in this market,” he told Arabian Business. “Overall financial conditions hold the project up, liquidity in the off-plan market is tight and buyers are not making payments on time – this adversely affects the development programme.

“Additionally, the escrow account negatively affects the payment cycle-time process to contractors. At times it takes up to three months to release a payment which also delays construction and progress.

“Thirdly, buyers on seven-year plans need to link to construction-linked plans to fuel progress. Most have paid 40-50 percent and we have achieved this much in the project, so the balance payments should come linked to milestones.”

Dubai Lagoon, which spans seven zones across a 5.7m sq ft site, was among dozens of real estate projects in Dubai impacted by funding issues following the collapse of the emirate’s property market in 2008.

The resort, which was meant to house the region’s first crystalline lagoon, suffered delays after hundreds of the project’s investors defaulted on their payments in the wake of the financial crisis.

Units which were originally marketed for sale under a five- or seven-year payment plan were also no longer feasible for many investors following the downturn, creating negative feeling among buyers.

The project was also hurt by the Road and Transport Authority (RTA)’s plans for a nearby road-widening scheme, which slowed down Schön’s acquisition of building permits for part of the project.

The developer, which failed to meet a revised February 2011 deadline for handover of the first residential units, has pledged to complete Zone 1 by year-end.

It has also promised to deliver all amenities, including the lagoon, as per the original agreement.

“[In terms of] completion of Zone 1, some buildings are only six to eight months away, but infrastructure constraints may enable us to deliver by the fourth quarter of this year,” said Schön.

“All completion dates are subject to buyers making payments on time, which is an improving trend in the last six months. We expect to handover zone by zone, starting from the fourth quarter of 2012. We plan to deliver all the promised amenities as per initial planning, including the crystal-clear lagoon.

“We will compensate each and every buyer as per agreements, but we will also claim compensation from buyers who have delayed overall progress by defaulting on payments as per the necessary laws.”