Damac woes threaten to wobble real estate rep

The key to making a successful investment in the property market is to treat the deal as a long-term investment, have patience, buy only quality products in strategic locations, and always go for a quality developer.

Not Kipp’s advice, but the words of Hussain Sajwani, chairman of Damac Holding, speaking in 2006. “Those people will make money,” he continued. “People, who end up buying any product, from anybody, cannot make money. They are going to lose money.”

His investment advice counts for little this week following news that Damac has axed its Palm Springs project. Work on the 25-storey development, on a plot at Nakheel’s Palm Jebel Ali, started five years and was originally due to be complete late 2007. As recently as February Damac had told Nakheel everything was on track. Investors who bought off plan will get their deposit, plus 6% per annum interest. For those investing in the Dubai property dream - where prices have tripled in five years - it is a rude awakening.

Damac’s troubles threaten to derail confidence in the wider market. An action group has been set up to fight the decision, and there is vocal (and growing) community of online critics. The Palm Springs Investment Group, mainly made up of UK investors, plans to take the issue forward.

It is the latest in a series of real estate foul ups to taint Dubai.

The most infamous was the Light House Affair. Real Estate developer Emad Ayoub took $3.8 million in advance payments for ‘off plan’ apartments in his Light project in Dubai Marina, and fled Dubai in April 2006. The project never made it past the foundations and Ayoub, after blaming ‘unforeseen technical difficulties’ for the delays in construction and promising the project would be completed, went away to the UK. He is being pursued by police and investors’ lawyers.

More recently, the 35-storey residential Alareifi tower at Dubai Marina halted work. Saudi Arabian developer, Alareifi, pulled the plug on the 379-apartment project midway through construction. Investors in the property are being told Alareifi cannot complete the project. Many of the buyers paid the full price of the apartments upfront, in return for which they received discounted prices.

Nearly 300 investors sued Tameer Holdings in 2006 over its failure to deliver apartments in the Al Ameera Residential Tower in Sharjah. Tameer told investors that it regretted having to cancel final construction as, despite its best efforts, it had been unsuccessful in obtaining a license. It claimed that Sharjah’s property ownership law states that non-GCC nationals cannot own freehold and therefore foreigners were legally not entitled to buy into Al Ameera. The investors’ main issue was why did they sell it to foreigners in the first place? The company though, was ready to return the deposit and around six monthly installments plus a negotiated 25 per cent on top.

And it is not the first time Damac has made the news. In 2006, the design and size of apartments at its Jumeirah Lake Terrace development were altered after buyers signed contracts and handed over substantial advance payments. Damac refunded nearly Dh500,000 to Derek Birtles, a British national who claimed that his apartment size was reduced by 12 per cent from that described in the sales brochures and plans and, failed to inform him or other investors of the changes until the work was 85 per cent complete.

For Palm Springs investors 85 per cent complete is a world away.

Are Damac’s sniffles first sign of real estate cold?