Shoreline fallout to take toll on property prices, rents

The escalating row between Nakheel and homeowners on the developer’s Shoreline project will tarnish rental values and property prices in the luxury Palm Jumeirah scheme, said analysts. The state-owned company on Sunday moved to ban hundreds of residents from using the beach, pool and gyms in their buildings in the first stage of a plan to charge for access to the facilities. Analysts warned the move could see landlords struggle to rent out their beach-front properties and would push down the price value of apartments in the development. “If that is the course they’re going to go down then it could have a negative impact on their signature apartments,” said Matthew Green, head of research at property consultancy CBRE. “The attractiveness of being on the Palm is a lot to do with location and the facilities, so if that is taken away, then beyond having a sea view and a nice apartment people are definitely missing out on things which are most probably being offered elsewhere. “We may start to see a bit of migration away from the development if Nakheel do start taking a tough stance on these facilities,” he said. Nakheel declined to comment on the dispute. Furious Palm residents were informed on Sunday that they could be arrested if they attempted to enter the beach clubs, after Nakheel moved to ban tenants living in apartments with outstanding service fees. The developer has been embroiled in a dispute with buyers for months, over its plan to ask owners to pay up to AED12,000 a year to access Shoreline’s pools, gyms and beach. Owners argue they own the facilities and many have withheld maintenance fees as the row rages on. Dubai’s Land Department this month asked owners to pay outstanding service charges into an escrow account it had established, and not to Nakheel, as it moves to determine who holds ownership of Shoreline’s common property. A number of tenants in the development told Arabian Business on Monday they had paid a premium for Shoreline’s beachfront access and planned to leave as soon as their lease expired. One tenant, who had recently signed a fresh year-long lease, said he had offered his landlord AED10,000 to break the contract and move out. “I’m paying a 30 percent premium to stay here. If I can’t access the beach clubs I might as well move to Jumeirah Lake Towers or Dubai Marina for significantly less,” he said. “Even if I pay to break my contract, I’m still saving money.” The annual rent of a one-bedroom apartment on Palm Jumeirah was AED90,000 in the third quarter, Asteco reported earlier this month. One homeowner in a comment to Arabian Business said he believed the dispute would wipe 20 percent off the value of his property. “A Palm Jumeirah apartment with no pool, gym, or playground. It does however back on Nakheel's beach club. Great.” Buyers waging war on Nakheel’s attempt to privatise the facilities say they are waiting for a decision from Dubai’s real estate watchdog, RERA, on the ownership of common facilities.  “It is very awkward right now. We are waiting for [RERA] to do something. They are realizing the enormity of the situation,” said one owner, who asked not to be named. “We are hoping that they rule in our favor. What we are saying is simply that Nakheel is in contravention of the main contract which is the sales and purchase agreement, and also advertising that encourages people to buy. “But it’s a terrible situation, and it’s very bad for Dubai. A lot of the residents on the Palm are expatriates and they will compare this to their home countries.” Property prices in Dubai soared after the city opened its real estate sector to foreign investors in 2002, granting them freehold ownership rights at many developments. Between 2007 and mid-2008 prices in the emirate rallied almost 80 percent, according to Morgan Stanley. But home prices in Dubai, the Gulf property market that had the biggest reversal because of the financial crisis, fell more than 60 percent in the wake of the global credit crunch. The government has made efforts to attract fresh investment in recent months, including the launch of a $1bn real estate fund to buy up assets in struggling property market. But Green warned the outcome of the Shoreline spat could hurt future foreign investment.  “From a market perspective, we must start to see more sway given to investors and end users,” he said. “If decisions keep going with the developer and the developer is seen as untouchable then that sends out completely the wrong message to investors and gives absolutely no encouragement for people to get back into the market. If investors are not being sufficiently protected, then that creates a risk market.” Last month, Nakheel’s chairman said the firm was legally permitted to privatise the beach clubs for its apartments, and that it didn’t expect tenants to be happy with its decision. He also said he did not see the move damaging Nakheel’s reputation internationally. “I cannot make everybody happy,” said Ali Lootah. “They should read their contract. We checked legally, we went to RERA. We abide by the law and we respect the law.”