Together with plunging values, missed home loan payments and abandoned properties, Dubai’s property market is a lot like others around the world. Apart from the fact that there have been no foreclosures in the emirate until now.
Barclays recently won Dubai’s 1st foreclosure case in a local courtroom. The decision, based on a 2008 law, paves the way for others to pursue claims. Lenders hold $ 16 billion of residential mortgages. Tamweel P. J. S. C., Dubai’s largest home loan bank, has a number of foreclosure cases pending. ” Banks will be more aggressive, ” says Antoine Yacoub, a Dubai – based banking analyst at Moody’s Investors Service. ” As soon as they see a precedent has been set, they will be encouraged to push more cases through. “
For much of the past decade the emirate was one of the world’s hottest real estate markets. Residential real estate prices quadrupled from 2002—the year Dubai first allowed foreign residents to possess property—to mid – 2008. The boom was fueled by a increasing expatriate workforce and speculation. Potential investors routinely stood in long lines to snag homes in new developments, even before construction began. Investors frequently flipped apartments, utilizing profits to buy additional properties. A number of apartments changed hands two or 3 times before ground was broken.
Not long ago there was no formal method for dealing with defaults. Lenders avoided the courts, discouraged by the ambiguity of the legal procedure and a culture which frowns on forcing people from their properties. To help home buyers, lenders often try to work out troubled loans, extending payment terms or permitting borrowers to return some of their investment properties. Even so, numerous credits have been left in limbo. The 2008 law should impose some structure on the process. It requires lenders to give homeowners 30 days’ notice of their intent to pursue foreclosure. If the court finds in favor of the lender, Dubai’s Land Department auctions off the property, with the income going to pay off the loan.
The global financial crisis has sent Dubai real estate values down 52 % over the past 12 months, says Deutsche Bank. High – rises stand empty. Some overseas residents who can not pay their mortgage bills have simply abandoned their properties and fled the country, ditching their cars at the airport parking lot. That’s because borrowers are required to write postdated checks if they take out a home loan—and people until recently could be jailed for bouncing a check in Dubai. Some 12 % of the 27,000 residential mortgages in Dubai could go into default within 12 to 18 months, in line with September estimates by Moody’s.
Lenders might be selective in applying the new law. Britain’s Standard Chartered Bank, a big mortgage lender in Dubai, says foreclosure is “a legitimate course of action” but not its “preferred approach”. As in the United States, financial institutions are reluctant to dump foreclosed houses on the market for fear of driving down prices, says Saud Masud, a Dubai – based real estate analyst at UBS. New projects, started before the bust, will add up to 30,000 housing units to the market in 2010, according to Deutsche Bank. ” Mass auctions might reprice the real estate market in a meaningful way, ” Masud says. ” It’s a slippery slope. “
