Palm Springs investors face millions in losses

PROJECT AXED: An artist's impression of Damac's Palm Springs development, which has been cancelled.

Devastated investors in Damac Properties' axed development on the Palm Jebel Ali are facing millions of dirhams in losses, one of the project's investors has told ArabianBusiness.com.

The Dubai-based developer recently cancelled the much-delayed Palm Springs project five years after launch, citing "redevelopment of the plots".

Damac has offered to refund the amount of money investors have put down on their property so far, plus 6% annual interest calculated from the date of each installment payment, or the option of transferring their investment to another project with a 15% discount off current prices.

Many buyers have snapped up Palm Springs units on the secondary market, meaning from an investor and not directly from the developer, paying up to a 50% premium on the original purchase price.

Prior to the cancellation of the project, Palm Springs units were estimated to be worth more than double the original purchase price, according to investors.

As the Palm Spring has yet to be built buyers will not have paid the full orignial purchase price, but will have made downpayments as agreed milestones were reached.

Secondary market buyers will have paid the seller the premium as well as however much of the the original purchase price the seller has paid to Damac.

Investors are now threatening to take Damac to court if it does not reverse its decision and continue with construction.

Nearly 60 UK-based investors in the project have formed a group to take on Damac, giving the developer until April 11 to reverse its decision or face legal action.

London-based investor Karl Brown told ArabianBusiness.com members of the group were facing average losses on their investment ranging between 300,000-600,000 dirhams ($81,000-$163,000), depending on when they purchased their unit.

Brown said he bought his Palm Springs apartment on resale in March 2006 for 1.5 million dirhams and believes the property is now valued at more than 2.2 million dirhams.

However, he will only receive a portion of the original purchase price, estimated at about 1.1 million dirhams, plus the 6% interest.

Brown said Damac had told him it was not the developer's contractual obligation to refund money that was paid on resales.

Brown said UK investors' losses were compounded by the rising value of the British pound against the dirham.

Many investors purchased their units when the exchange rate was 6.4 dirhams to the pound, while the exchange rate is now around 7.3 dirhams to the pound, he said.

Brown said the group, the Palm Spring Investors Group, was appealing to Dubai's Real Estate Regulatory Authority (Rera) and Nakheel, master developer of the Palm Jebel Ali, for assistance with the dispute.

Damac was not immediately available for comment, but in a statement issued earlier the developer said it understood the situation was serious and unfortunate, but that it was "completely outside Damac Properties control".

“Due to redevelopment of the plots, the building forming the Palm Springs development cannot be situated on the re-allocated plot and as a result, the Palm Springs project has been cancelled, Niall McLoughlin, senior vice president of corporate communications at Damac Holding, said in the statement.

“Damac is committed to its customers and in view of this cancellation, Damac Properties will provide customers an opportunity to release the investment made at Palm Springs and transfer the monies to any other project in the Damac Properties portfolio at a discounted price 15% below current market."

The 25-storey Palm Springs project had originally been planned for completion by late 2007, and buyers were already angry over repeated delays, contractual issues and complaints of poor customer service by Damac.

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READERS' COMMENTS

Every one involved has to shoulder responsibility
Posted by Makani, Abu Dhabi, UAE on Sunday 6 April 2008 at 13:50 UAE time

Well: What we see here in Damac fiasco would definitely trigger the medium term correction in the market which is heavily overprized and over hyped…. I have lived in Dubai for 5 years and had worked in real estate sector for one of the local developers for some time and I have seen the way real estate mess started among medium size real estate developers / agents who used all their means to deceive investors… that time when no one was regulated and most of the people have made money in real estate in Dubai at the expense of others…no one is watching them….I feel pity for the investors in Palm Spring…but who are the offenders behind this…. ….Now that Damac, which is relatively bigger player, is involved...This should prompt govt of Dubai to put extra effort in putting a right and effective system in place which would help in protecting interest of every one involved.

I understand the entire following are some way or the other is responsible for this fiasco.

DAMAC: Not protecting investors’ interest by not providing up-to date information to investors in the secondary market about the status of the project.

Delaying the project without being accountable to any one…..

NAKHEEL: Not compelling Damac to disclose the change of facts statement to potential investors on timely basis and just coming up with explanation when the damage has been done…..

RERA: Not having any update on the project status and taking pro-active steps to protect potential investor’s interest….

Not keeping effective watch on the real estate agents / companies who do buying and selling business…some times over selling the properties and playing around with non-sophisticated investors….

INVESTORS: Why they did not do their due diligence on the developer…..did not they know that Damac has only delivered 2 out of 50 projects and is struggling to make sales and often attach valuable prizes with their properties….

Did they were not aware of the risks involved in the buying off-plan property from secondary market….

What kind of representations were made to them by sellers and selling agents

Did they not update themselves on the project status buy visiting Nakheel / Damac office and inquiring on the status of the master project and Palm Spring Project

Signs of Bubble Busting
Posted by ak, Dubai, UAE on Saturday 5 April 2008 at 17:24 UAE time

This is the beginning of the bubble busting, and will eventually snowball into a reality check. I am most definitely out of Dubai investments until unless prices go down 30%.

Palm Springs
Posted by MW, Dubai, UAE on Wednesday 2 April 2008 at 12:37 UAE time


This is an outrage and Damac are clearly looking to avoid the increased cost of building. I am very keen to join the consortium of those threatening action and would appreciate being contacted by those involved. Property values have tripled in this period of time. The Government needs to get involved to avoid this spreading across the Globe to all property investors.

Palm Springs
Posted by matthewwuillemin, dubai, UAE on Tuesday 1 April 2008 at 23:52 UAE time

Until the real world of real estate takes hold here these things are going to re-occur. I could never understand how someone could re sell some thing on the secondary market that had not even been built yet. Really all that was happening is that folks are novating their contracts. You can do this in the real world but no funds change hands until the final settlement. And then the property may change hands several times in one day... that is how things work in more regulated markets. I believe that there could also be a legal case against the sellers in the secondary market as they have not delivered on the contract that they sold to the unfortunate latest purchasers either.... this is the beginning of the Dubai Sub prime crisis!!

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