Property investors are stuck in the middle of a Dh1 billion legal dispute between Nakheel and Souq Residences - with video.
Dispute shuts out Palm Jumeirah buyers
DUBAI // Investors in one of Palm Jumeirah's biggest developments say they have been left out in the cold by a Dh1 billion (US$272.3 million) legal dispute between Souq Residences, the company behind the project and Nakheel, which built the group of islands.
The investors in the Golden Mile who recently formed a group to advocate for their interests say they have yet to move in six years after the project's launch, even though construction has been completed and they have paid in full for their properties.
"We've had immense difficulty," said Suhail Rehman, one of the investors. "People have lost two years of rent on fully paid-up assets."
Analysts say the delay and the legal dispute show the far-reaching stress the financial crisis is still exerting on Dubai's embattled property market.
Property prices in Dubai have dropped by about half in some areas since the peak of the market in 2008, and a recovery is contingent partly on the resolution of complicated financial disputes.
Those disputes stem from stalled construction, issues with handovers and consolidation of investments, among a range of problems.
"There are a lot of questions that need to be answered before you see investors putting money into the sector," said Majed Azzam, a property analyst at Alembic HC Securities in Dubai.
"We're being reminded of this by cases against some of the government and private developers. It's not just a matter of finances but also of putting a legal system in place to handle these disputes."
The legal row between Souq Residences and Nakheel began last November, when Nakheel sued in the Dubai World Tribunal to recover advance payments it had made to buy retail space on the ground floor of the Golden Mile development.
Nakheel argued it should be refunded advances totalling Dh100m because its agreement to buy the space was cancelled.
Souq Residences is a joint venture between Kuwait's Ifa Hotels & Resorts and Istithmar World, an investment arm of the government-owned conglomerate Dubai World.
The Dubai World Tribunal is a special court formed in 2009 to hear disputes involving the conglomerate as part of its restructuring.
After Nakheel filed its suit to recover the Dh100m in advances, Souq Residences, which is being overseen by Ifa, fired back in December with a claim against Nakheel worth almost Dh1bn. Ifa argued Nakheel's agreement to buy the retail space was never cancelled, and it asked the Tribunal to require Nakheel to pay the remainder of the agreed Dh1bn purchase price.
Souq Residences also alleged in its complaint that Nakheel had "wrongfully prevented" it from "handing over possession of various residential apartments" in the development by blocking building completion certificates and other approvals necessary for handovers.
Nakheel declined to comment, citing the continuing legal case. Also citing the legal proceedings, Ifa declined to comment "beyond assuring its clients that it is doing everything within its legal power to bring about a quick resolution".
The dispute is a continuing source of frustration for investors in buildings five and six of the Golden Mile, which together contain 172 apartments. While eight of the 10 buildings in the development were handed over in 2009 and last year, the remaining two sit completed but unoccupied.
"I have been a contributor to the UAE's economy even in bad times, and I'm being relegated to bounce around from lease to lease in spite of spending Dh2.5m in cash on this apartment," said Rahul Khanna, an investor in building five who runs a currency trading business in Sharjah. "They owed me a better answer."
Some investors blame Souq Residences for the delays, citing contracts that refer to handover dates last year and earlier, and the company's refusal to give refunds to investors who want their money back.
Peter Lawrence, also an investor in building five, last year tried to invoke a contractual clause that stipulates a refund if completion and handover dates are not met.
Souq Residences denied the request, citing a "force majeure" clause - a provision that prevents enforcement of obligations under extraordinary circumstances. Investors have been caught in the middle of the row and many are frustrated at what they call the injustice of having paid in full for goods they have yet to receive.
"I'm one of the first people who bought in, and I bought an apartment because I wanted to … live there," Mr Khanna said.
A date for the Tribunal case has yet to be set.