Damac - the fun and the games

Devastated investors in Damac Properties' axed development on the Palm Jebel Ali are facing millions of dirhams in losses.

The Dubai-based developer recently cancelled the much-delayed Palm Springs project five years after launch, citing "redevelopment of the plots".

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 installment payment, or the option of transferring their investment to another project with a 15% discount off current prices.

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.

Prior to the cancellation of the project, Palm Springs units were estimated to be worth more than double the original purchase price, according to investors.

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

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

Investors are now threatening to take Damac 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 reverse its decision or face legal action.

London-based investor Karl Brown told ArabianBusiness.com members of the group were facing average losses on their investment ranging between 300,000-600,000 dirhams ($81,000-$163,000), depending on when they purchased their unit.

Brown said he bought his Palm Springs apartment on resale in March 2006 for 1.5 million dirhams and believes the property is now valued at more than 2.2 million dirhams.

However, he will only receive a portion of the original purchase price, estimated at about 1.1 million dirhams, plus the 6% interest.

Brown said Damac had told him it was not the developer's contractual obligation to refund money that was paid on resales.

Brown said UK investors' losses were compounded by the rising value of the British pound against the dirham.

Many investors purchased their units when the exchange rate was 6.4 dirhams to the pound, while the exchange rate is now around 7.3 dirhams to the pound, he said.

Brown said the group, the Palm Spring Investors Group, was appealing to Dubai's Real Estate Regulatory Authority (Rera) and Nakheel, master developer of the Palm Jebel Ali, for assistance with the dispute.

Damac was not immediately available for comment, but in a statement issued earlier the developer said it understood the situation was serious and unfortunate, but that it was "completely outside Damac Properties control".

“Due to redevelopment of the plots, the building forming the Palm Springs development cannot be situated on the re-allocated plot and as a result, the Palm Springs project has been cancelled, Niall McLoughlin, senior vice president of corporate communications at Damac Holding, said in the statement.

“Damac is committed to its customers and in view of this cancellation, Damac Properties will provide customers an opportunity to release the investment made at Palm Springs and transfer the monies to any other project in the Damac Properties portfolio at a discounted price 15% below current market."

The 25-storey Palm Springs project had originally been planned for completion by late 2007, and buyers were already angry over repeated delays, contractual issues and complaints of poor customer service by Damac.