Palm Springs shakes investor confidence

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With investors threatening legal action over Damac's cancelled Palm Springs project, Conrad Egbert takes a looks at how the outrage is threatening investor confidence.

The cancellation of Damac's Palm Springs has shaken confidence among some investors in the Gulf real estate market.

And it has also drawn attention to how tight the market is becoming in the region.

An incident in London last month highlighted the extent to which property investors are losing faith in the market.

Angry investors in Damac's axed Palm Springs project stormed the company's launch of Jumeirah Village South at the Carlton Hotel in Knightsbridge, circulating flyers to potential investors with negative publicity on the Palm Springs story.

An excerpt from the flyer obtained by Construction Week read: "We, the Palm Springs Investors Group, will be taking Damac to court in order so that Damac either reverses its decision and proceeds with constructing Palm Springs on Palm Jebel Ali, or it provides a like-for-like apartment at the same cost, terms and conditions on a new Damac development on Palm Jebel Ali, or it provides financial compensation at current market rates for Dubai Waterfront/Palm Jebel Ali.

"We attended similar evenings to this launch and were duped into buying from Damac. We trusted and believed in Damac but strongly warn that you do not make the same mistake as us."

Damac has said it cannot build the project on the plot Nakheel reallocated on Palm Jebel Ali and has instead written it off as a ‘force majeure'.

According to UK investor Robert Miller, who bought a unit in Palm Springs in 2003, investors could stand to lose an estimated US $296,000 (AED1.09 million) because of the cancellation.

Last week, a letter from The Palm Springs Investors Group, which is made up of more than 50 members, was sent to Damac, demanding that the axed property be constructed on the reallocated plot or else the company would face legal action.

Nakheel has also been pulled into the drama with some investors suggesting that if the reallocated land is not good enough for the construction of Palm Springs, and the ‘force majeure' clause is accepted, then Nakheel should arrange compensation for them.

But Nakheel has expressed surprise over Damac's stance, with the company's Palm Jebel Ali managing director, Marwan Al Qamzi, saying:

"Our last interaction with Damac took place in February of this year and was one of positive engagement, which left us with the firm view that Damac was proceeding with the project. We are extremely disappointed to have heard the news of the cancellation through the media.

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READERS' COMMENTS

Damac's sale of Terra Del Sol
Posted by Anwar Ali, Vancouver, Canada on Monday 7 April 2008 at 04:43 UAE time


Damac has been unfair to the clients who booked in this project. Their fault was mainly non-disclosure that they were only marketers rather than developers. Secondly their pricing was not uniform among various clients. As a result some who booked 3 years ago are at a loss against the ruling market prices.

Damac Properties - Palm Springs
Posted by Dr Alishah, Birmingham, England on Saturday 5 April 2008 at 19:25 UAE time

I genuinely believe that Peter Riddoch and Hussain Sajwani are honourable and honest people with highest integrity.

Damac employs over 6000 employees and I am sure that some of them, in senior positions, especially in their legal department, are very doggy, to say the least. The legal advice given to the Senior Leadership in canceling the Palm Springs Project is seriously flawed and Damac Properties will pay "big time" financially and with their reputation if matter proceeds to courts.

Nakheel has already discredited Damac's chairman, Hussain Sajwani statement and Force majeure clause by stating that:

1. plot purchased for Palm Springs has been delivered
2. It is in a premier location (better than before)
3. They communicated the revised master plan with Damac ten months ago
4. Damac Properties assured, Nakheel, in February, that Project will be completed
5. Modification to the master plan cannot be considered Force Majeure because modifications, revisions and alterations are already covered in clauses 13,1 and 13.2 of the 22 page contract and
6. Only an idiot will consider the enhancement of the Palm Jabel Ali as Force Majeure! (Act of God? NO Nakheel!!)

There is no shame in admitting a mistake, especially if it is made on a advice based on ignorance of Law of Tort.

Damac Leadership should correct this mistake by sacking their legal boffin and compensate its investors fairly and honourably, as a matter of urgency, before their so called $30 billion dollar portfolio disappears in the sands of Dubai or to its competitors and rivals in the real estate industry

Palm Springs
Posted by Alan, London, UK on Saturday 5 April 2008 at 16:27 UAE time

I've invested in this development, and this is an excellent summary of the situation.

I urge any potential customers to stay clear of Damac - you have been warned. Their adverts are gloss, with no substance. They have no honour, and are loosing any credibility they've built pretty fast.

I know a few people that used to work in the customer services department, and I can infom you that many of them are leaving in droves as they uncomfortable with the things they are being asked to say - surely that tells you something - even the workers are disgusted with the situation.

Their greed will be their downfall.

Damaging Confidence in Dubai Real Estate
Posted by Palm Springs Investor, UK on Saturday 5 April 2008 at 13:31 UAE time

I applaud ArabianBusiness.com for taking an interest and reporting on this story. If the situation is not resolved soon, the actions of DAMAC will have a very damaging effect on the real estate industry in Dubai.

After all, Sheikh Mohammed is on record as saying “Many leaders promise, we deliver.“ Is it too much to ask that business in Dubai also live up to this ideal?

I am hoping that RERA is taking a keen interest in matters and will swing into action to protect investors and the reputation of Dubai. If RERA decide just to sit back and watch events unfold then people will be questioning exactly what they stand for.

Ultimately, how the Dubai authorities decide to deal with the current DAMAC scandal will be a reflection on the values which Sheikh Mohammed wishes to uphold.

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