Will the Palm Springs Development in Dubai Go Ahead After All? - Damac Properties Reconsidering its Position

Many investors consider off plan properties a smart buy. You get a good discount on the property because it is still not constructed, and the developer gets money at the start of the project.

But sometimes the real estate investment does not live up to expectations. For example, the construction delay and subsequent announcement last month that the Palm Springs project in Dubai would be cancelled has kicked up a storm amongst investors. Here’s a look at what happened.

Developer decided to cancel luxurious Palm Springs project in Dubai

Dubai developers Damac Properties launched the Palm Springs project in 2003. This prestigious project, featuring luxurious accommodation on a man-made island in Dubai was such an attractive project, it found many overseas investors, including people based in U.K.

Palm Springs was due for completion in 2007. However, Damac Properties announced that it would be unable to go ahead with the project due to changes made in the master plan of Palm Jebel Ali, the island where the Palm Springs project was to be constructed.

Niall McLoughlin, senior vice president of corporate communications at Damac Holding was then quoted by ArabianBusiness.com as saying that, “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.”

Palm Spring investors in an uproar

To compensate the investors, Damac Properties offered to refund the sum invested, along with an interest of 6 percent per annum. Alternatively, investors were given the option of investing in any other project of Damac’s at a discount of 15 percent below the current market value.

However, many investors would still suffer very significant losses in any of these scenarios. A lot of them had bought their Palm Springs properties on the secondary market from other investors or resellers, and not directly from Damac Properties. These buyers would have paid the original developer’s price along with a hefty premium, which is now at risk because it is of course not covered by Damac’s refund offer.

Also, there has been a steep rise in the property prices in Dubai over the past five years, and many people who invested in Dubai five years back may not be in a position to do so today.

Damac reconsidering ‘various scenarios’ as UK investors contemplate legal action

Sixty UK-based investors who invested in the project have now come together to form a group called the Palm Springs Investors Group. The group is contemplating legal action against Damac Properties if it does not reverse the decision against constructing Palm Springs. These investors have also appealed to RERA (Real Estate Regulatory Authority) in Dubai and to Nakheel, the master developer in the Palm Jebel Ali.

Amid mounting pressure from all sides, and hoping to stem the tide of bad publicity, Damac Properties is now reconsidering its position.

“We have had a number of representations from investors on the decision to cancel the Palm Springs project. We are looking at various scenarios and will make a statement in due course.” Damac’s Niall McLoughlin, said in a statement published by ArabianBusiness.com.

There seems to be a strong possibility that Damac will offer a solution that is more acceptable to the investors, although there is no indication so far if going ahead with the Palm Springs project is one of the options actually being considered.

Off-plan property market unlikely to be suffer - but investors will be more vigilant

In an apparent kneejerk reaction to this incident, many respondents said in a poll that they would now be very cautious when buying off-plan property in Dubai. This may be a bit of a confidence-shaker, but buying off-plan property still remains an extremely profitable real estate investment, and even such a high profile incident is unlikely to seriously dent the market in the long run.

Before being cancelled, the Palm Springs project was believed to be worth double the original price. Moreover, Dubai remains one of the more lucrative real estate markets in the world.
Investment in off plan properties still remains a good option, but nevertheless, property investors would do well to heed this wakeup call and make sure they take the necessary precautions before going ahead with any venture. Even though instances like this one are remote, it is in your best interest as an investor to foresee such a possibility and make sure it is adequately addressed in the contract that you sign with the developer.

Also, do your research thoroughly and find out all you can about the property and the developer. If there is anything going for the Palm Springs investors right now it is that Damac Properties is one of the largest and most reputable developers in Dubai and has a lot at stake pending on the final outcome of this situation.

Further reading: The Dos and Don’ts of Buying Property off Plan.
[tags]Palm Springs, Palm Springs Dubai, Damac Properties, Damac, Dubai property, Dubai real estate, off plan property, real estate news[/tags]