Reason for axing Palm Springs questioned

Palm Jebel Ali master developer Nakheel 'very surprised' at Damac project cancellation.

The master developer of the Palm Jebel Ali has raised questions over Damac Properties' explanation for axing its Palm Springs project on the manmade island.

Dubai-based Damac cancelled the much-delayed project late last month due to "redevelopment of the plots", stating that the development "cannot be situated on the re-allocated plot".

Nakheel, which is building three palm-shaped islands off Dubai's coast, said on Tuesday it had informed investors of changes to the Palm Jebel Ali masterplan over 10 months ago.

Nakheel also said it had "positive" correspondence with Damac as recently as February, in which the developer gave no indication that it would not be going ahead with the project.

“We are very surprised by the statements made by Damac suggesting that the reasons for the recent cancellation of its Palm Springs project are due to revisions in The Palm Jebel Ali masterplan...," Marwan Al Qamzi, Nakheel managing director of the Palm Jebel Ali, said in a statement.

“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..."

Al Qamzi said the reason for the scrapping the 25-storey beachfront development had to be related to something other than the re-allocation of the plots.

“From Nakheel’s perspective, Damac’s cancellation of the Palm Springs project must be linked to other development issues specifically related to the project,” Al Qamzi said.

Damac was not immediately available for comment when contacted by

Nakheel's remarks will only further infuriate angry investors, who are facing millions of dirhams in losses, one buyer has told

Many investors have rejected the compensation being offered by Damac, and are threatening to take the developer 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 change its mind or face legal action.

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 instalment payment, or the option of transferring their investment to another project with a 15% discount.

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.

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

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

Damac said it was not the developer's contractual obligation to refund money that was paid on resales, according to an investor.

The saga seems to have reduced confidence in the Dubai property market, according to the latest spot poll.

Two-thirds of respondents said news of the cancellation had made them think twice about buying property off-plan, stating that it had made them "very cautious about the Dubai property market".

Dubai has a massive secondary market for off-plan real estate, with units passing through numerous hands before a development is finally built as investors capitalise on soaring prices in the sector to make quick profits without putting up huge amounts of capital.

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Posted by: Samer Helmy

caveat emptor is the latin origin of the well-known doctrine of "Buyer beware". That applied in the old days and today to homeowners selling present property to other individuals, and it was against the state of a property as it was the buyer's responsibility to inspect the unit and decide if the price is worth it, basically that there is no warranty. Developer's responsibility to actually build the unit is NEVER under caveat emptor, it is a contractual obligation to deliver that Damac in this case clearly violated and is simply counting on investors to bend over and let it slide. As a matter of fact, even in defects and quality issues, the developer (builder-seller) STILL cannot be protected by caveat Emptor as they are responsible for what they build. Today for example in the US they have what is called Implied Warranty of Fitness that developers HAVE to deliver the property free of any defects. Greed or whatever, the investors invested and signed a contract that forces the developer to build if he can, and the fact that DAMAC did not put in the foundations for over 4 years before Nakheel reorganized the plots is not the investors fault. I say take them to court and make them pay full damages. Regards, Samer Helmy

Posted by: Sussex Sheikh

There is an old Latin phrase 'caveat emptor'. This applies as much in Ancient Rome as it does in 21st Century Dubai.

Posted by: Riham

Believe Nakheel! I do realise that they are late on a few projects, but as a buyer, I'd just purchase from them or Emaar. The only two developers I have trust in and I'm saying this as an expat! Have never believed Damac and am sure it is to do with greed. All the money from the downpayments was probably "snatched" up and spent a long time ago....perhaps this is just the beginning of a complete breakdown! Raffle draws on private jets, islands, luxurious cars, etc to attract people? Good idea, sure...but for how long? I can just imagine how many projects are financed to completion in Dubai from the money received as downpayment for newly announced can you break even then or make a profit? No way....I can just imagine what kind of strict controls the Dubai Government will introduce soon for private developers. Am sure they should start off by asking them to deposit hundreds of millions of dirhams as a safety deposit to protect buyers!

Posted by: Sanjay Amar

While people talk about potential losses that may arise on account of the shelving of this project, there are damage control measures one could look at. One idea that immediately comes to my mind is holding the subject land on which the property was to be constructed in trust for the registered buyers of the property, liquidating the land at current values and making proportionate payments. At least the registered buyers could benefit from the appreciation of the land. This could be a better solution than the two alternatives offered. And, if payments have been made to Damac on percentage of completion basis, the damage would be minimised further.

Posted by: prahlad

The probem has got to have its genesis in the turmoil currently facing the construction industry which is bleeding on every front for reasons outside its control. Acute scarcity of resources - notably materials and manpower - coupled with escalation of costs to levels beyond belief on the one hand and fixed-price contracts on the other, have all had a devasting effect on the industry. Palm cancellation is, in my veiw, just tip of the ice-burg.

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