A group of property investors is threatening legal action against a big Dubai developer over the sudden cancellation of a residential project on Palm Jebel Ali, the second man-made island off Dubai.

Damac Properties told investors last month it would axe the Palm Springs project, which was first released for off-plan sales four to five years ago. The Dubai-based developer has offered to repay the initial cost with 6 per cent interest per year or to transfer the investment into another Damac project.