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.

Damac threatened with lawsuit after project axed
Investors unhappy with compensation after developer cancels Palm Jebel Ali project.

Print | Email | Discuss this article |

READERS' COMMENTS

View all comments (17)

Have your say

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!!

Palm Springs Mess
Posted by Potential Dubai Resident, London, United Kingdom on Tuesday 1 April 2008 at 19:55 UAE time


Whilst I feel some sympathy for gullible overseas investors who perhaps did not know what they were getting into, I have little sympathy for those who are driven by pure greed.

If the equivalent of the Wall Street Crash is likely to happen again, Dubai is the most likely location.

I have wanted to live in Dubai for several years, but have been priced out as I have seen properties rocket above London prices. I am sure many potential ex-pats have been, like me, waiting and watching for the inevitable bubble to burst.

I visited Arabian Ranches when it had just been completed and could not understand why it looked like a ghost town, when nothing was apparently left for sale.

Now everybody will think twice about buying in the secondary market. It will take a few months before we see the impact, but once that secondary market shrinks, the carpet baggers will start to pull out of the primary market.

Eventually, we will get back to the situation where people are actually buying properties to live in, hopefully at more realistic prices.

These are the kind of Developer that Distroy the Market Confidence
Posted by Sam Wahib, Dubai, UAE on Tuesday 1 April 2008 at 17:47 UAE time


It is amazing to see the effort and amount that Damac spends on ADVERTISING.... while they do NOT spend enough effort on delivering on their promises. Other than 2 buildings in Dubai Marina, I'm not aware any othe project that was delivered out of the 50+ project they sold....In addition, and not a single Damac project has been delayed less than one year.

I can not imagine a project that was supposed to be completed in 2007, just gets cancelled NOW (after the completion date). These investor must have paid in 2004, now they will just get 6% interest while they could have got 200% to 300% return if they would have invested these sums in any other project in Dubai

When you deal with such developer you should look carefully at the contract, and make sure that you are covered with proper compensation should this happen to you

Update facts
Posted by Ilyas, London on Tuesday 1 April 2008 at 17:00 UAE time


No one apart from Damac is really in the wrong here, Lee talks about who should be sued, the only ones who have gone back on anything are Damac. The have been given a Plot by Nakheel, but they will obviouly get a lot more money by selling it afresh then re designing and leaving it with the original investors.

I think most people cant grasp the simple con that is being carried out here - Nakheel have redesigned but have delivered on there side of giving plots - Damac want to make more money by selling at new prices so are trying t cancel peoples contracts.

One thing about unavoidable delays but completely cancelling investors contracts and offering 6% per annum so then can then sell at 300% of the orginal price that is a con...........

Damac and the fun and games
Posted by Mike H on Tuesday 1 April 2008 at 16:53 UAE time


Damac have been selling off plan now for 5 years. They must surely have sold 60 plus developments. In that period they have handed over 2 buildings if my memory serves me. It seems to me that its all about taking in the cash that they can and skirting around the deliverables with excuses like this. Before the escrow was introduced what was happening to all that money?
Hmmm interesting.
I wonder how their developments in Egypt and Jordan are faring. Maybe Palm Springs is financing those.

Palm Springs Mess
Posted by Lee, Dubai, UAE on Tuesday 1 April 2008 at 15:18 UAE time


Wow! Lots of opinions on this one!!! I feel for the investors, end users, speculators, etc. who will not be receiving their property. And for those who were secondary buyers, well, these buyers could lose big time depending on the premiums they paid. But who should be sued or held accountable?

-Should Damac sue Nakheel as one of the Palm Springs investors suggested? I guess they could but then Damac would never receive another plot in any Nakheel development ever again. I would be surprised if any Middle East master developers would ever want to work with Damac. Is Damac going to risk that??? I don't think so.

-And who is to say when Nakheel told Damac? I think we need Nakheel to "clear the air" and come forward with the facts on this plot and their communications/dealings with Damac.

-Should previous owner's be sued for their premiums? Who is to say they were not "tipped off" to problems and told to sell by Damac executives? I bought a property in JLT and a year later one of the representatives told me how late the project would be and that the finishes were going to be rubbish. He recommended I sell if I could which I did. If you think buyers are not gettings "tips" for when to buy or sell in this market you are being naive.

Is anyone really surprised this happened? If anything I am surprised it took this long for it to happen. Developers are buying plots and less than a year later they are selling flats off plan, sometimes before master developer's complete the infrastructure works. This was bound to happen. My wife and I bought a flat in 2005 only to have the building completely redesigned in 2006. We ended up with a flat on a lower floor because that was all that was left for us. I knew then the whole real estate game in Dubai was going to be risky until the government introduced laws to regulate the "monkey business". But at the end of the day, this is still the wild frontier. There may be Escrow accounts, but where are the penalties for projects handed over 1, 2 or 3 years late?

Who knows how this will turn out.....but I am going to sit back and watch the entertainment!

The Damac fiasco
Posted by Plam Springs Investor, UK on Tuesday 1 April 2008 at 14:05 UAE time

"As stated before in this thread; sit back and watch and enjoy." Kieran

What about the first rule of good government, of regulating the real estate industry? I'm sure you wouldn't be sitting back and enjoying things if your local Wimpy builder did the same to you if they felt their profit margin had become too small to make it worthwhile to deliver the property you had purchased several years ago....

"The Dubai Real Estate is like a gambling table, you speculate & invest. The chances of making it big is high but if you lose, you do not blame the casino, you blame your self." The Thinker

You have a very poor opinion of Dubai - simply a huge gambling place billing itself as being run along Islamic principles. The Sheikh of Dubai paints a very different picture of Dubai...

"Don't you people who speculate on a value of something that is not happening see that you too pump up the bubble a little too much, and are really helping the same developers whom you want to sue now?"

You do not seem to understand the simple fact that Damac have renegaded on the contracts given to investors not because of any property bubble, but SIMPLY TO STEAL MONEY THAT RIGHTFULLY BELONGS TO INVESTORS. It is not as if they do not have money to pay compensation at current market rates, or do not have a plot on the Palm Jebel Ali to build the Palm Springs project.

Palm Springs
Posted by theshadow, Dubai, UAE on Tuesday 1 April 2008 at 13:51 UAE time


It may not be criminal but it's shady as you can imagine. Not only DAMAC are to blame though, the real estate industry here is equally guilty of distorting reality in their efforts to get people to buy buy buy.
I just don't see how this works though - surely if a developer announces a development and offers it for sale they're obligated to deliver the project as advertised?

If not, that says a lot about the maturity of the real estate industry here and the type of people it has attracted. I'd rather spend my hard-earned money elsewhere on something solid instead of a coloured, computer rendered bubble that might burst at any given moment for no valid reason.

It really is ludicrous.

Facts
Posted by Ilyas, London on Tuesday 1 April 2008 at 12:18 UAE time


Some people dont seem to understand what this is about. Nothing to do with volatile markets, because if the value had gone down that is something the Investors understand, nothing to do with workmanship, oversupply blah blah.

Damac have used investors money to buy the plot, and then when the price goes through the roof they want to renege on the their committments and sell it for more.

People posting on here talking about falling markets and all the rest this simply is nothing to do with the issue, investors paid for something on Palm Jebel Ali and thats what they should get. Not some shoddy excuse about a redesign.

AND if the price had collapsed ofcourse Damac would then have said to the investors to buy in a redesigned palm springs, just so happens they have seen an opportunity to make more money buy selling them afresh.

First Rule of Investment
Posted by Kieran, London, UK on Tuesday 1 April 2008 at 10:57 UAE time


Only fools think that high returns are not the reward for high risks...

These investors can persue this claim but they need to risk having the world know they were either gullible enough to think this was a guaranteed return or thought they were party to some nefarious deal whereby their returns were guaranteed unless, of course, DAMAC or their agents gave them assurances that there would be a massive return, thereby, through that assurance, underwriting the risk.

However, that may well indeed be the case. UAE sales agents (and there are so many of them these days) with their hyperbolic talk about massive returns and guaranteed investments may be advised to have their lawyers double check their publicity material and make sure their staff are trained well or this lawsuit and future ones could start to cascade down the property-boom feeding chain eating the weak.

The authorities have recently, and rather belatedly, been taking steps to regulate these sales and are to be applauded for that but, unfortunately, a lot of things were said and done pre-regulation, that might come back to haunt the market.

That coupled with the fact that there is a huge amount of property just now coming to completetion so the builders must be praying that their new owners are too ill educated or naiive to spot the shoddy workmanship and poor finishing prevalent in the region and launch a tidal wave of warranty claims for repairs and bringing properties up to the standard portrayed in the sales publicity. There is no evidence to suggest that most of the developers actually have the kind of solid, cash, foundations and secured credit lines to survive any major turbulence in this market, let alone to go paying out compensation back to burnt investors or aggrieved owners.

Caveat Emptor and nowhere is this truer than buying "off plan".

As stated before in this thread; sit back and watch and enjoy.

Who's to blame?
Posted by The Thinker, Dubai, United Arab Emirates on Tuesday 1 April 2008 at 10:31 UAE time


Well, who is to be blamed, is it DAMAC who just promotes but never forces a investor to buy or is it the investors pouring in millions without seeing a brick on ground.

There a very true old saying, 'SEEING IS BELIEVING' & there is a counter line that says that only the risk takers reach the top (but for the risk takers, it can be rewarding or a dive in the dump while the believers would have lost a good opportunity if it was really good later).

The Dubai Real Estate is like a gambling table, you speculate & invest. The chances of making it big is high but if you loose, you do not blame the casino, you blame your self. After all, before & after investing, you believed in speculation (until DAMAC's announcement) and took a very strategic decision.

Palm Springs mess
Posted by George, Dubai, UAE on Tuesday 1 April 2008 at 09:45 UAE time


Well ...

If Nakheel redesigned the plots, then Damac should have either informed the investors in time, or sue/ask for compensation/alternative plot(s) of the same properties from Nakheel now.

While I can feel sorry for the original investors, the ones asking for the compensation of the secondary sales are obviously not entitled to any refund beyond the original price and any interest that the developer is accepting. Their risk - as long as they thought that the value is going up, they kept quiet, right? - and their loss. They would be happy if the project went through and they had 100% returns on the investment.

And, I really fail to see how a flat that is never going to be built can be valued, let alone worth millions??? Don't you people who speculate on a value of something that is not happening see that you too pump up the bubble a little too much, and are really helping the same developers whom you want to sue now? Compound greed ... great!

Let's kick back and watch ... the game is on ...

Palm Springs
Posted by stuart mayhead, Abu Dhabi, UAE on Tuesday 1 April 2008 at 08:17 UAE time


So is this going to be when they judge the bubble to have burst? Or is it just a leak....

Damac's action tantmount to FRAUD
Posted by Palm Springs Investor, UK on Tuesday 1 April 2008 at 04:24 UAE time

"Damac said it understood the situation was serious and unfortunate, but that it was "completely outside Damac Properties control"."

What a load of codswallop. Damac has known about the re-design of the Palm Jebel Ali for ages, and I'm sure Nakheel would have kept them informed of progress in the re-design. It's astounding for Damac to suggest that it has 'suddenly' learned that the original plot will not be delivered, and so has had to cancel the project. Damac seem to think that those who invested in the Palm Springs are a bunch of brainless fools who are not able to see through this LIE.

If Damac are not able to honour their contracts for failure to deliver by Nakheel, then they should be suing Nakheel, rather than penalising investors with whose money Damac has had all of these years.

It is extremely surprising that the Dubai authorities are not stepping in and investigating Damac, if not on investors behalf, then to safeguard the reputation and of Dubai as a safe place to invest.

These latest comments by McLoughlin reveals that Damac's business ethos is driven by greed, and I applaud Brown and the Palm Springs Investors Group for standing up to Damac's underhand illegal tactics.

Click here to post a comment

Add your Comment All posts are sent to the administrator for review and are published only after approval. ArabianBusiness.com reserves the right to remove any comment at any time for any reason. Please keep your responses appropriate and on topic.
Name *
Remember me on this computer
Email *	(Your email address will not be published)
City
Country
Subject *
Comment *
Notify me of further comments
Security Code *
Please click post only once - your comment will not be published immediately.

MORE FROM ARABIANBUSINESS.COM