ArabianMoney.Net

First with Financial Comment from Arabia

Buyer anger mounts on two failed Dubai property schemes

leave a comment »

Resale buyers in Damac Properties cancelled Palm Springs project on the Palm Jebel Ali are going to lose any premiums paid on these apartments during five years of resale activity and have little choice but to transfer to another Damac project. Meanwhile, Saudi Arabian developer Alareifi, has stopped work on its half-completed 379-apartment tower in Dubai Marina.

The Alreifi Marina Tower was not sold on a staged-payment basis like other off-plan apartment projects in Dubai. Instead buyers of apartments in the 35-storey building paid the whole amount upfront in return for a discount. Now it is unclear if they will get their money back.

Both these recently cancelled projects were started well before the new escrow account law came into existence last summer, and before the dynamic new Real Estate Regulatory Authority was created.

Doubled investment

In the Damac case the one, two and three bedroom apartments went on sale in late 2003 and within a year resale prices had doubled. Perhaps with this kind of investment return nobody kicked up a great fuss about the project not actually starting.

But after holding and having the use of these funds for five years Damac is saying it can not proceed as the design of the Palm Jebel Ali has changed and its plot no longer exists. And even more controversially the owners are being offered their original price back plus six per cent per annum interest, or a transfer to another Damac development at a 15 per cent discount.

‘Damac Properties has been advised that the master development of Palm Jebel Ali has been redesigned and the Palm Springs plot will not be delivered. 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,’ says Chairman Hussain Sajwani.

Buyers who have bought in the resale market really have no practical alternative but to transfer to one of the numerous other Damac developments, or they will loose substantially on the premium paid on the original price. It could be worse.

Legal threats

Some buyers are threatening legal action and think that spiraling construction costs since 2003 may have made the project economically non-viable at the original sale prices, and hence the cancellation has followed. But as freehold ownership was not actually legalized until 2005 it has to be said that their grounds for a law suit may fall into a grey area to say the least.

More troubling is the situation of the Alreifi Marina Tower where it looks as if the RERA will have to exercise its new role as Dubai property troubleshooter and try to find a solution.

But on this project it looks as though high construction prices and selling units too cheaply have caught up with the developer. Market forces have shifted against buyers who struck a bargain too tight for the building to be actually built.

As ever caveat emptor: buyers beware if a deal looks too good to be true it probably will be! But hundreds of Dubai off-plan projects are proceeding according to plan, if rather off schedule, and a few rotten eggs are to be expected in this basket.

Advertisements

Written by Peter Cooper

April 2, 2008 at 1:10 pm

Posted in Dubai Property

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: