Dubai developer faces investors’ legal threat

Dubai developer faces investors’ legal threat

By Simeon Kerr in Dubai

Published: April 2 2008 23:25 | Last updated: April 2 2008 23:25

A group of property investors is threatening legal action against a big Dubai developer over the sudden cancellation of a residential project on Palm Jebel Ali, the second man-made island off Dubai.

Damac Properties told investors last month it would axe the Palm Springs project, which was first released for off-plan sales four to five years ago. The Dubai-based developer has offered to repay the initial cost with 6 per cent interest per year or to transfer the investment into another Damac project.

The looming clash between disgruntled investors and a big Dubai developer threatens to undermine confidence in the buoyant Dubai property market, which has soared since 2002, when foreigners were allowed to own real estate in the regional business hub.

About 70 investors, mostly from the UK, have clubbed together to lobby Damac, Nakheel, the state-owned master-developer building the Palm islands, and the Dubai government. Some buyers paid premiums of up to 50 per cent in the secondary market, rather than buy direct from the developer.

Damac, after selling off the apartments years ago, now faces higher costs on materials and labour amid the highly inflationary environment. The aggrieved investors say Damac may seek to launch a new project on the plot, selling to new investors at vastly inflated prices.

The Palm Springs Investors Group in a letter to Damac has asked it to confirm the cancellation by April 11 “at which time we will take legal advice with a view to commencing legal proceedings against you”.

Damac has targeted sales from several offices across the UK, backed by high-profile advertising campaigns. Only two of 38 advertised residential buildings have been delivered to customers, say real estate analysts, but around a dozen more are scheduled for completion this year.

Damac declared force majeure in a letter to owners last month, saying it had been forced to axe the 25-storey building – originally scheduled for completion in 2007 – as Nakheel had assigned the developer a different plot on the reclaimed, palm-shaped island. “The Palm Springs development cannot be situated on the re-allocated plot and as a result the project has been cancelled,” Niall McLoughlin, of Damac, said in a statement.

Nakheel claims it told the company 10 months ago about the plots’ redesign.