The sale of Dubai’s first foreclosed property may signal the
start of liquidity returning to the mortgage market, analysts said Tuesday, but
warned the release of repossessed homes onto the market must be carefully managed
to avoid a further sag in house prices.
Barclays said this week it had sold its first repossessed
property at an auction held by the Dubai Land Department. The property, a villa
in The Springs, had a reserve price of AED1.2m ($326,700) and sold for AED1.22m
($332,145), a spokesperson for the bank said.
Dubai introduced a repossession law in 2008, under which
Dubai banks were authorised to give defaulting homeowners 30 days notice to
resume mortgage payments before beginning foreclosure proceedings.
Barclays was the first bank to, in January 2010, repossess a
home, clearing the way for lenders holding about $16bn of homes loans to
attempt to recover their losses.
It has been reported that up to around 200 foreclosure cases
are being processed by the Dubai Courts.
Analysts said this week’s sale is a positive indicator for
Dubai’s property market as lenders will be able to start offloading properties at
adequate prices, reducing their exposure to defaulting homeowners.
“I think it’s good for the market as a whole, good for the
lenders and good for the potential borrowers who need finance to get on to the
residential property chain,” said Nick MacLean, managing director of CB Richard
“There are quite a lot of properties that have come back to
the lenders over the last couple of years and they have essentially retained
them… The fact that a lender is disposing successfully of properties is sort of
indicative of some strength coming back to the marketplace.”
Maclean said a reduction in risk to lenders would eventually
trickle down the property chain to borrowers, resulting in improved liquidity
and lower mortgage costs.
will be more willing to come into the market place if they have got a better
chance of recovering their money if things don’t work,” he said.
Other analysts, however, warned against the impact of a
flood of repossessed homes on an already strained housing market.
Tom Bunker, investment sales consultant at real estate
agency Better Homes, said the release of homes must be staggered or run the
risk of pushing prices down further, potentially causing more foreclosures and
“If these properties are liquidated in an organised manner,
there should be little effect on the prices of similar properties in the
market,” he said. “However, if a large number of these properties reclaimed
through foreclosures are re-inserted into the market all at the same time we
could see another readjustment of certain property prices.”
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