By Staff writer
Around 74 Palm Jebel Ali buyers sent a letter to the office of Dubai ruler, Sheikh Mohammed bin Rashid Al Maktoum, last year, highlighting the uncertainly and negative impact the delay in delivering the project has had on the group
Nakheel chairman Ali Rashid Lootah has told disgruntled investors in the stalled Palm Jebel Ali development that they were given the option to switch their investment to Palm Jumeirah and if they chose to wait until the project is resurrected there is nothing he can do.
Work on the Palm Jebel Ali (pictured below) development began in 2002 but was stalled in the wake of the Dubai property crash, which saw property prices slump by up to 60 percent and around half of projects mothballed indefinitely.
In November, a letter signed by 74 investors in Nakheel’s Palm Jebel Ali project was sent to the office of Dubai ruler, Sheikh Mohammed bin Rashid Al Maktoum, highlighting the uncertainly and negative impact the delay in delivering the project has had on the group.
The letter, addressed to His Excellency Mohammed Al Shaibani, chief executive of Dubai Investment Corporation and director general of The Ruler’s Court, was also forwarded to management at Nakheel, the master developer behind the project.
“We purchased our homes on the Palm Jebel Ali between 2003 and 2008 because we are excited to be part of this world class development… Since 2003, we have all paid between 30 percent and 50 percent of the price of our homes to Nakheel and many of us have paid far more than this via the secondary market,” the letter, which was seen by Arabian Business, stated.
“The lack of certainty as to when our homes will be built has caused, and is causing, tremendous financial and emotional suffering for us and our families and many of us continue to endure on-going mortgage and rental costs whilst we are waiting. Many of us have invested our life savings into the Palm Jebel Ali,” it added.
Lootah said the project was definitely not cancelled and Nakheel would resurrect it at some time in the future when market conditions make it viable.
“It’s not easy... Palm Jebel Ali is almost seven to eight times the size of Palm Jumeirah... It is very costly, with regards to infrastructure and everything. But we have a commitment to it, and will not cancel the project,” he was quoted as saying in an interview with Gulf Business.
Directly addressing the concerns expressed by his disgruntled investors he added: “What can I do if they are not happy with anything? We gave them the option to shift to Palm Jumeirah, which was fully developed. Many investors took that call and the price tripled after they moved there.
“A lot of people – not only villa owners, but also people who bought plots for development, hotels or buildings, they moved. And they are happy. Some people also swapped into other properties. But some people just want to wait – what can I do?”
In January, the government-owned developer said it expects to maintain profit growth of 40 percent in 2015 and 2016, as it benefits from diversifying into the retail and hospitality sectors.
It reported a 43.2 percent jump in full-year profit for 2014 to AED3.68 billion ($1 billion), despite a substantial drop in revenue.
"We see the same trend will continue for this year. We are very optimistic we will maintain similar (profit) growth for this year and next year. A lot of the new projects we launched are in the phases of getting delivered this year and next, so there are still good years to come," Lootah told a press conference.
Nakheel was one of the developers worst hit by Dubai's real estate crash, which knocked 49 percent off prices between the third quarter of 2008 to the market bottom in the second quarter of 2009, according to data from consultants Cluttons.
The sector has since rebounded and Nakheel paid off its pre-crisis bank debt four years ahead of schedule. Property prices in Dubai were among the fastest-rising in the world in the 18 months to June 2014, causing fears of another bubble bursting, but prices stabilised in the second half of the year.
Nakheel's profit growth in 2014 came despite a 24.7 percent decline in revenues to AED7 billion, which Lootah attributed to securing higher margins on the properties it was selling and the writing back of a AED460 million provision against a project on Palm Jumeirah, the palm-shaped islands off Dubai's coast, which Nakheel developed.
"Although the revenue dropped, we had a better margin because of our measures to control costs," said Lootah.
"Our (2015) revenue will stay around the same (as of 2014) but we have healthy margins. We will increase revenue when we complete the new retail, hospitality and leasing portfolio," he added.
He said that once all the projects in these sectors were completed in 2017, it would generate around 7.5 billion dirhams of gross revenue, compared to the 1.3 billion dirhams of net revenue it created in 2014. There was around a 15 percent differentiation between gross and net revenue, he added.
Nakheel expected to secure AED7 billion worth of new construction contracts in 2015 and hand over 1,200 villas, up from AED5.3 billion of contracts in 2014.
* Nakheel no longer responds to media enquiries from Arabian Business, nor does it grant Arabian Business access to any of its media events or announcements.
I'm not sure who from the investors were offered the option to change to the Plam Jumeirah, i have never even heard of that! I'm one of the 'investors' in the Palm Jebel Ali and i was offered to switch to other houses like Alfurjan or apartments from one of Nakheel's developments BUT at a price higher than the market price and that was early 2014!! Which was unfair to pay more than market price for a normal house or apartment in exchange to a beach villa at the Palm and pay even more...
This Lootah person shouldn't be allowed to run a corner shop; let alone a development company that is so closely linked to Dubai and its vision pursued by the relentlessly by the rulers. I really wonder why one would appoint somebody so completely ignorant and potentially harmful to an entire country's reputation. EMAAR ALL THE WAY!
Interesting that Mr lootah chooses to comment about this in the press but has not held any dialogue with me a customer.
The options I have been given:
1) The money I paid for a villa (years ago) to be switched into other Nakheel projects at today's market price.
- This money buys a 1/2Bed apt at todays prices. This is like putting a deposit down on a Ferrari and being offered a Skoda 10 years later.
- There were only 2 swap options available in the list I was given (neither Palm Jumeirah) and both more expensive.
2) A refund of my money without the contractually agreed interest on 31st March 2015 - in effect a 10 year interest free loan. Many owners have mortgages in deficit, so cannot take reductions as the banks won't let them and/or cannot afford the difference.
3) Wait for the project to be built - for which the completion date continues to be vague.
Yes we are unhappy...
This company is damaging the image of Dubai and foreign investors will now become more wary when investing in the city due too these "I can do what I want" tactics we are seeing from Nakheel.
Directly addressing the concerns expressed by his disgruntled investors he added: â€œWhat can I do if they are not happy with anything?
- Mr. Lootah, then stop giving false promises in your promotions of Dubai for investment. You change your laws as you please and no one can appeal as in your Palm Jebel Ali development.
Nakheel no longer responds to media enquiries from Arabian Business, nor does it grant Arabian Business access to any of its media events or announcements.
What happened to freedom of press in Dubai?
Palm Jebel Ali is a signature project, We should not think about it 7 to 8 times bigger in size, rather think about completing 7 to 8 times smaller than Palm Jumeirah, Allocation must be revised on structured basis and investors will be happy to continue paying their remaining dues. The start of construction work will send strong signals for new investors and completion of the development.
I was offered a one bed studio on Palm Jumeirah at above market rate. It was not a swap. It would transfer only the original investment paid many years earlier against a an over priced property where we would owe more than on the original 4 bedroom villa.
So in answer to "What can we do if they are not happy?" We would like confirmation that our contracts are honoured
We would like our names on the land registry
We would like Nakheel to reopen the transfer desk.
If Nakheel are going to resurrect the development then it would be an ideal opportunity for long term investors.
We are not making demands that PJA is developed prior to appropriate market conditions. We just want the statements issued by Lootah to have merit. Honour our agreements so that we have a viable choice.
The secondary market (fuelled by speculators) caused a number of investors to be left holding contracts for Palm Jebel Ali properties that they believed, merited the inflated price they 'paid' for it. For example, the innovative water homes.
Now if development has stalled, and the developer isn't telling you when it might start again, but is offering you an 'alternative' that happens to have none of the desirable features of the water homes, and its 'relative' value is millions of dirhams less than the water home (Al Furjan)...would you take up the offer?
I know I wouldn't...and I too would be chasing Nakheel to find out when they intended to build them.
An uncaring dismissive stance from the captain of the ship can only garner increasingly bad publicity for Nakheel and foster a reluctance to buy properties from them in the future to such an extent that the prospect becomes an anathema.
Added to which, once purchased an owner cannot extend a property without first spending a small fortune in what are now exorbitant fees levied by Nakheel for the privilege.
Taken in combination with a litany of earlier issues over service fees and beach use banishment on the Palm Jumeirah, this all amounts to very little in the way of positive spin for what is after all a Dubai government developer.
To be frank, with no commitment to a start date in sight for work on the Palm Jebel Ali, the most obvious option is to give the original investors their money back plus interest. I cannot see, given their prevailing profits, how Nakheel could possibly afford to build PJA until well into the 2020s. The true cost of Palm Jumeirah has never been revealed.
Ethically, whatever has been invested, should be returned in full, that's basics.
I know there might be contractual complications involved, but basically if one can't deliver the final product - there's no point in withholding someone's life earnings for your personal benefits for more than 5 years.
And reading the comments here, its clear the investors are not being offered equally beneficial alternatives as per their investment, and that's wrong in every way.
"What can I do if they are unhappy?", return their full investment and let them move on with their normal lives.