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Old June 2nd, 2006, 11:31 AM   #1
dubaiflo
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The DAMAC thread ...




Damac investors lash out over construction delays
By Khaleej Times Scrutiny Investigations Team

2 June 2006


DUBAI — Investors in several of Damac Properties' residential construction projects are threatening to withhold payments from the company in protest over the firm's failure to finish buildings on time. Damac, which started life as a catering company but now bills itself as Dubai's 'largest private property developer', is facing an unprecedented backlash from residential property investors who bought 'off plan' apartments in advance of construction.

Buyers are furious over repeated delays in construction, contractual wrangling over compensation, complaints over interior finishes and poor customer service. Of the five projects (out of its advertised 15) Damac has started, all are running substantially behind their projected completion schedules.

Damac's problem projects are:

The Waves — was due for completion May 2005, now projected to be finished mid-2006

Ocean Heights — originally scheduled for the end of 2007, then delayed to June 2008, now will not be delivered until end of 2009.

Lake View — originally scheduled for completion by December 2006, construction will not be finished until first quarter of 2007, with the project's landscaping not ready until December 2007.

Jumeirah Lake Terrace — tower delayed six months until the end of 2006, with the showpiece lake and landscaping not ready until the end of 2007

Marina Terrace - Damac's first residential tower, delivered 14 months late. Was due for completion in October 2004, buyers were only given keys in March 2005. Subsequently, two floods from burst pipes caused damage to several apartments. Damac CEO Peter Riddoch has written to buyers apologizing for the 'protracted' delays in delivering apartments.

Many buyers have bought Damac properties as rental investments and are concerned that they will be unable to start earning income from their properties for years to come.

One Lake Terrace investor said: "Regardless that the apartment might be ready by the end of 2006, if the lake and landscaping are not completed for another year after that, I will never be able to rent the property while the project still looks unfinished and still resembles more a construction site than a place to live."

The Khaleej Times has learnt from buyers at Lake Terrace and Ocean Heights developments that a number of them have told the company they will hold back scheduled payments. Buyers are even discussing organizing mass withholding of payments.

The company, whose website boasts '4500 happy home owners' - markets heavily in the UK and Europe, but is now also receiving unflattering coverage there. Laurie McWhan, a The Waves buyer, told the London Times newspaper: "Three years after I made my investment, I don't have my house, a year's potential rent of £12,000 [Dh 82,000] is down the drain, and all they have offered me is a few thousand pounds in compensation. It's scandalous." Damac relied on wide-ranging 'force majeure' clauses to minimise contracted penalty payments to owners at Marina Terrace and The Waves.

Damac's delivery problems are adding to jitters felt by many of the Emirates property investors: particularly in the wake of the 'The Light House Affair' revelations. Developer Emad Ayoub fled Dubai in April having taken Dh14 million in advance payments for 'off plan' apartments. His Light House marina project, which was due for delivery in April, 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, is now in hiding in the UK and being pursued by police and investors' lawyers.

The levelling out of recent property price rises and the predicted oversupply of new apartments is also adding to anxiety over delayed projects and the increasingly public grumbling over Damac's construction delays and other apparent problems now appears to be having a knock-on effect with newer developments.

A Damac salesperson, who spoke on condition of anonymity, confided that Ocean Heights remains undersubscribed with a significant number of

apartments unsold. The Khaleej Times has also learnt that poorer than expected sales have led the company to offer unsold apartments at prices below their original offering price when the towers were first marketed.

The company has also launched more unusual sales incentives.

Following on from its Jaguar car offer for new owners, the company is now offering free tickets and business class airline tickets to see World Cup 2006 in Germany.

Despite almost universal praise for the daring and elegant designs of the exteriors of Damac's towers, buyers have complained about their interiors.

Bathrooms and kitchens in Marina Terrace have been described as 'cheap', 'poor' and 'horrible', with much criticism levelled at the tiles and finishings. At Marina Terrace and The Waves, much of that material is supplied by Damac's own Omani subsidiaries Al Shams and Al Amana.

Many Damac investors have resorted to online forums to express their disappointment and anger over what has happened to their investment properties. One buyer raged: "Damac are falling back into mediocrity and when they do, nothing will sell at the exorbitant prices they are expecting.

"People will see through them and this will have a effect on their future projects. Maybe they want to be blind to that fact, who knows? They will learn the hard way I think."

Another wrote: "If everyone says their interior finishings are crap, their reliability appalling and their customer service non-existent (and EVERYONE DOES!), then Damac are really wasting their time."

-------

this is very bad for Dubai.

still it is 7 out of 500 projects, but anyway.. this is one of the major developers.
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Old June 2nd, 2006, 11:52 AM   #2
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Well, it's definitely time for those guys to clean up their act. First of all stop releasing new projects! They should just concentrate on what they've released and finish those.

The guys who bought in lake view and lake terrace though should be shouting at Nakheel not damac.

"Regardless that the apartment might be ready by the end of 2006, if the lake and landscaping are not completed for another year after that, I will never be able to rent the property while the project still looks unfinished and still resembles more a construction site than a place to live."

He's going to be VEEERY unhappy, that place will look like a construction site for another 5 years definitely


It's too bad it has to be damac though since they do release the best-looking towers.
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Old June 2nd, 2006, 01:37 PM   #3
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were those quotes off ssc?

Naz will be pleased anyhow.

WIND should take note of the compensation though. at least damac ave given out 'afew thousand'
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Old June 2nd, 2006, 01:43 PM   #4
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This Thread is for Naz ...........
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Old June 2nd, 2006, 02:06 PM   #5
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Khaleej Times don't like DAMAC maybe got off on wrong foot only reason they have run a few storeis in the recent months.

I'm sure DAMAC are aware of the problem areas and know of NAZ's DAMAC Appreciation club

But i'm not supprosed investors want to hold back money no project has been completed on time.

Well anyway DAMAC could always go back to making sandwiches or whatever they did in catering before.
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Old June 2nd, 2006, 02:28 PM   #6
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If investors start witholding funds, DAMAC could go under. It would be a huge blow for Dubai's property market.
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Old June 2nd, 2006, 03:07 PM   #7
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Quote:
Originally Posted by dubaiflo
Many Damac investors have resorted to online forums to express their disappointment and anger over what has happened to their investment properties.
Looks like they are talking about SSC but didn't bother mentioning our website and also fabricated the quotes.

Does anyone have any idea what KT has against Damac? This is their second hate article.

As for DAMAC, the solution is simple... stop releasing projects in Abu Dhabi and in Doha.... instead finish up your park towers and your ocean heights first!
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Old June 2nd, 2006, 04:07 PM   #8
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Damac's House of Cards

In my experience construction delays can almost always be traced back to a lack of finance.

Informed property agents in Dubai have been predicting this all along - even as far back as 3 years ago when their first releases came onto the market.

Damac does not have a background in property development and (according to informed sources) entered the real estate market on the back of making good losses in other ventures.

The problem is their business model does not allow them to stop releasing new developments - they need the deposit cash from new launches to fund their ongoing cashflow and the construction costs of towers under development.

Think about it - Damac have a large network of international sales offices (bigger than Nakheel and Emaar), they spend fortunes on international exhibitions and sales literature, they have numerous sales offices, manned with shiny sales executives in the UK, Europe and throughout the Middle East, they spend a lot on their free car promotions, and every week they run full colour adverts in the Sunday Times.

In one case I went to an extravagant launch for their XL Business Bay tower. This sparkly launch was held in the Grand Ballroom at Emirates Towers and in addition to a champagne reception they provided a full 5 course sit-down meal for almost 1000 people - the whole thing must have cost at least $100k - $200k and this just for the launch event.

All these things taken together this adds up to a massive ongoing spend which even the likes of Nakheel and Emaar are not prepared to commit to - though they could afford it.

Remember, construction by private developers in the UAE is financed by sales income, not by the banks. So investors hold 100% of the risk.

In any conservative company - the sales money from that development would be held in escrow to finance only that development - in Damac's case however i fear that cashflow and income/expenditure are poorly managed - new launches are vital to keep the company afloat - and investors are being exposed to additional risk.

Now given the current climate where off-plan sales are much slower than previously and Damac having a large cash burn for their running/marketing/construction costs - something has got to give!

Damac are reluctant to release any financial figures indicating the performance of the company - whilst this is their right - i strongly feel that the whole Damac business is a house of cards waiting to topple.

Now, Dont get me wrong - Damac in trouble means problems for the whole real estate industry in Dubai - one can only hope that they come clean - and can finance themselves adequately out of the problems they are currently facing.

Last edited by dubayyy; June 2nd, 2006 at 04:12 PM.
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Old June 2nd, 2006, 04:37 PM   #9
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The needs a good finance Director / Department asking them how a 5 course meal is going to make anyone buy more space in a tower.

If they ain't got the money the shouldn't just waste it. They got a nice website and nice towers and whats the point of repeating same advert in Sunday times every week surely if am a times reader i'd get the msg if i wanted a DAMAC tower where to go after a few adverts.

Sounds like an ENRON scandel here.....too much marketing and not enough empahsis on the final product i.e interors etc, which they know they can get away with as it's to late for investor then.

DAMAC i hope your reading this.
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Old June 2nd, 2006, 05:54 PM   #10
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long time left until we see this sight!!

cant wait for naz's comments on this article!!
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Old June 2nd, 2006, 07:03 PM   #11
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They have a good website, and I recon a few ads every now and again is enough. Having an ad every week just makes them look desperate (which they are) and doesn't look good.
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Old June 2nd, 2006, 07:10 PM   #12
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one thing's for sure.. if damac crashes... it's gonna be a bad bad mark for dubai's real estate market simply because whether you like it or not.. damac is a dominant player in dubai and its towers are recognized all over
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Old June 2nd, 2006, 08:30 PM   #13
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Quote:
Originally Posted by dubayyy
In one case I went to an extravagant launch for their XL Business Bay tower. This sparkly launch was held in the Grand Ballroom at Emirates Towers and in addition to a champagne reception they provided a full 5 course sit-down meal for almost 1000 people - the whole thing must have cost at least $100k - $200k and this just for the launch event.
Man, I'd love to have crashed that place!

I think they should cancel their newest towers like the ones in abu dhabi and stuff like the new "business tower", etc, and sell any other plots they've bought including that huge business bay one (I'm sure they could make a good bit with that). Then they should just concentrate on finishing stuff like park towers, ocean heights and all the rest, and get out of this hole they're in. The more projects they launch the deeper the hole seems to get.

I kinda feel sorry for these guys (damac guys)

Last edited by malec; June 2nd, 2006 at 08:37 PM.
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Old June 2nd, 2006, 08:55 PM   #14
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I'm glad i'm doing my little bit to highlight the situation. The above is something i've been saying for over a year about Damac now. And NO! i don't just "have it in" for Damac. I am talking through personal experience.

There is nothing I would love more than for Damac to really get their act together now, listen to their investors and cut all the crap out of their operations in Dubai.

I would sincerely love to be proven wrong about Damac and for them to complete a tower with no problems, on time, at prices in keeping with the rest of Dubai. And I would really love to own a 1-bed in Ocean Heights, the first ever property I considered in Dubai Marina. But I'm afraid that is highly unlikely, given the current situation.
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Old June 2nd, 2006, 09:40 PM   #15
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Quote:
Originally Posted by dubayyy
In my experience construction delays can almost always be traced back to a lack of finance.

Now, Dont get me wrong - Damac in trouble means problems for the whole real estate industry in Dubai - one can only hope that they come clean - and can finance themselves adequately out of the problems they are currently facing.
Dubayyy, I appreciate your articulate and well-reasoned post. However, unless you are privy to Damac's accounts it is only conjecture so let's not all automatically adopt your last statement as fact from hereon.

Damac is unlikely to be an Enron! Interestingly, they are operating similarly to Nakheel and the Palms - Jebel Ali and Deira are being sold before the first one is handed over - and yet no-one suggests Nakheel are going under. Okay, so we know that Dubai plc is behind Nakheel, but I'm just highlighting that this mode of operation does not necessarily mean cashflow problems, in fact it might result in the opposite!

Undoubtedly Damac do have some isssues to sort out but I don't think they're alone. I bought in Lake View and have personally found Damac in London to be very professional in my own dealings with them - maybe I've been lucky but I've heard much worse of other developers. I also chose to buy face-to-face in London because I can visit in person should the need arise. (Incidentally I am looking to sell one of my apartments but purely for financial reasons, not because I have any real concerns about the delivery of Lake View).

My opinion is that Damac has, up to now, been a victim of it's own success and as such has got too big for it's boots. It's architecture is fantastic and it's marketing promotions have had the buyers flooding in up until recently. However, I think they've taken their eyes off the prize with the final product and they are announcing too many new projects before completing those in hand - a symptom of Dubai in general (Dubailand, Falcon City.... and yet the Marina and the first Palm are work-in-progress). They need to reduce their margins (which I imagine are quite large compared to other developers) and fulfill their promise of interiors to match the exteriors.

My contracts include late delivery clauses and payments are made in line with construction progress. As I have already received written notification that delivery will be late (1st qtr 2007) and given no specific reason for this, then I expect to receive compensation from the original completion date of December 2006. If Damac come up with some 'force majeure' argument then I will be taking legal advice, simple as that.

Also, if the apartment specs are not as described in the brochure then I will be taking legal advice prior to my final payments. I would expect other purchasers to do the same.

What would make sense is for purchasers of Damac (or any other developer) towers u/c, if unhappy with current reports on quality, to contact the developer NOW and make them aware that finishes below the original specification will not be tolerated and they are in for a big headache and withheld final payments if that is the case at handover. At least this then gets discussed when something can be easily done about it, ie NOW.

If I were CEO of Damac I would be looking to overcompensate to ensure that original promises are more than delivered - they will still make their profits, maybe just a bit less than they would like. Their ongoing success depends on it.
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Old June 2nd, 2006, 09:56 PM   #16
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buyers flooding in? have you heard of a project called ocean heights?
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Old June 2nd, 2006, 10:24 PM   #17
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Quote:
Originally Posted by Krazy
Does anyone have any idea what KT has against Damac? This is their second hate article.
Duh, don't you remember that KT and DAMAC had a long running Legal Battle about an article they run accusing Damac of entering the Real Estate market for the fast buck, after loosing tens of millions of dollars (even more maybe) in international stock market transactions.
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Old June 2nd, 2006, 11:34 PM   #18
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Quote:
Originally Posted by Krazy
buyers flooding in? have you heard of a project called ocean heights?
Agreed. I should have been more specific, I meant PRIOR to Ocean Heights being released my perception was that their developments were selling well. Certainly the sales lists I was getting for Lake View and other developments at the time (end 2004) were changing on a weekly basis and as cynical as I am I doubt that they were just rotating the list.
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Old June 3rd, 2006, 07:32 AM   #19
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this is so typical of dubai market, i mean has there actually been a single project in dubai that actually fnished on time ... never
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Old June 3rd, 2006, 03:17 PM   #20
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Quote:
Originally Posted by Krazy
buyers flooding in? have you heard of a project called ocean heights?
The only thing that's been flooding is Marina Terrace.
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