Dubai development takes on second life

Hundreds of buyers scrambled to snap up luxury homes on the largest of Dubai's palm-shaped islands where villas are going for 10 times the price of when the project was launched -- but never built -- two decades ago.

Brokers and investors queued in 100-degree Fahrenheit heat from 6 a.m. on recently outside Nakheel PJSC's sales center where the government-backed developer is selling hundreds of five-to-seven bedroom villas on the undeveloped Palm Jebel Ali -- about 30 miles from downtown Dubai. Homes start at $5.1 million, while the cheapest plots of land are selling for about $10.9 million.

Armed with checkbooks, brokers -- many representing buyers from Russia and India -- pleaded with staff to let them into Nakheel's heavily guarded offices at the base of the city's first and most famous man-made island, Palm Jumeirah. One employee handed out water and paper towels to the crowd.

Dubai is reviving the Palm Jebel Ali project years after it was halted as the emirate seeks to cash in on an influx of newcomers, ending a seven-year property slump and pushing prices to record levels. The luxury end of the market, in particular, has seen a spectacular reversal, with the city soaring to the top spot of global rankings in the second quarter for transactions of homes valued at $10 million or above, according to real estate consultancy Knight Frank.

After making "very good money" from two villas on Palm Jumeirah, Tamer Bazzari, founder of Dubai-based investment firm Genero Capital, last week bought a 7,000-square-foot property for $5.2 million and is planning to buy a second villa.

"The Palm Jebel Ali designs are exceptional," Bazzari said, as he was leaving the sales center after a long morning. "The location and square foot value is much better than other properties. We think it will be a very lucrative investment."

A representative for Nakheel declined to comment.

Last week's chaotic scenes are reminiscent of sales events during one of Dubai's first property surges in the early 2000s, when the emirate first allowed foreigners to buy homes. Previous boom times in Dubai fueled a wave of flamboyant construction only to be followed by sudden downturns.

Nakheel started selling townhouses and high-end waterfront homes on the Palm Jebel Ali in 2003 for between $500,000 and $1.5 million. Those properties were then resold many times without a single brick being laid.

In a sales brochure at the time, Nakheel called Palm Jebel Ali the eighth wonder of the world. At roughly the size of London's Heathrow airport, the development adds 68 miles to the emirate's coastline. It was meant to host marinas, a theme park, beachside villas and a thousand homes on stilts that spelled out a poem by Dubai ruler Sheikh Mohammed bin Rashid Al Maktoum, according to reports at the time.

The project was eventually halted when the global credit crisis of 2008 pushed Nakheel to the brink of default, leaving hundreds of buyers in limbo. While many investors have since swapped their purchases for alternative Nakheel properties, others were offered refunds for amounts collected by the developer until it stopped working on the project, Bloomberg News reported in October.

Palm Jebel Ali has since been redesigned to include 80 hotels and resorts, with plans to house as many as 35,000 families. Nakheel will start by building new homes across four fronds of the development, which is roughly twice the size of Palm Jumeirah. Some of the largest villas will be more than 12,000 square feet -- about a third of the size of the White House.

"Twenty years ago those properties were priced more competitively to make up for the inconvenience of construction and the time it would take for the entire project to complete," said Yasin Valimulla, chief executive officer at property broker The Luxury Address, who attended a teaser session for the new Palm Jebel Ali.

Buyers will have to pay 20% of the villa's value upfront and a further 40% during construction. The balance is due when the properties are complete in 2027.

Ajay Singh, a broker at La Capitale Real Estate, said he was representing four Russian and Indian buyers who had their eyes on specific villas.

"It's a lottery so you take whatever you can get," he said, after standing in line for three hours. "No client wants to stand in the heat so we come with documents and a credit card authorization of $50,000, while they make a bank transfer for the rest."

Even with the project's checkered past, Valimulla doesn't expect potential buyers to be deterred. He's representing three investors who already own property on the Palm Jumeirah. One of them opted for a villa, but the two others are holding off for now.

Those buyers "needed more time to weigh up the investment especially since they would have to pay 24% of the value upfront," he said. "They decided to wait for the later phases to be released, which would give better understanding of how it will pan out."