Reason for axing Palm Springs questioned

Palm Jebel Ali master developer Nakheel 'very surprised' at Damac project cancellation.
By Amy Glass and Dylan Bowman
Tue 01 Apr 2008 05:49 PM

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 ArabianBusiness.com.

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

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 ArabianBusiness.com 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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