By Ed Attwood
Lawyers, consultants claim moves by banks and developers show maturity in sector.
Foreclosure and repossession cases in the Dubai real estate market are predicted to increase this year but legal experts say they could help the market in the long run.
While 2009 saw developers and financiers try to negotiate with clients in order to avoid foreclosures and repossessions, legal experts expect more cases to reach the courts this year.
“During 2009 we were involved in a number of high value resolutions to potential disputes, which we were able to resolve amicably and settle out of court,” Simmons & Simmons regional deputy head of real estate Duane Keighran told Arabian Business.
“However, we are now seeing less and less negotiation taking place.”
Keighran explained that all those disputes that could have been resolved amicably have largely reached a settlement, while in other cases, clients are cutting their losses and walking away or bringing legal action against the counterparty.
The Simmons & Simmons lawyer said that he expected the trend of cases going to the courts to continue throughout 2010.
“It is the unfortunate side of business, but it has to be played out in order for these issues to be flushed through the system so that the economy can recover,” Keighran added.
“From this point of view, it is refreshing to see the actions being brought, as it means we are one step closer to getting the issues resolved and moving on.”
The regional head of consultancy CB Richard Ellis also claimed that repossessions and foreclosures were good for the marketplace as they show a level of maturity.
“It has to come because people, I think, have borrowed with a view that they’re immune to any further action – like the situation with credit cards where people run up debt and then skip the country – that’s bad for banks, and bad for the country,” the company’s Middle East managing director, Nicholas Maclean, explained.
“But we have to get a grip a little more on people’s borrowings; the courts should encourage banks to repossess, but at the moment, I don’t think banks will for fear they won’t be able to move on that property.”
But Richard Bell, an associate at Clyde & Co, believes that foreclosure remains something of a sensitive issue in the finance sector, due to poor media perception of the activity, and the fact that too many defaulting debtors could drive prices down even further.
“As such, we suspect banks will only use it [foreclosure] in clear cut cases where the debtor is unlikely to mount any challenge to the foreclosure,” Bell said.
“As a result of these factors, we believe most banks and financial institutions will use the foreclosure procedure sparingly, at least in the short term while property prices remain fragile.”
Forclosure policies will only add to the actual developers abuse. This will kill Dubai property market for ever. No Strata laws, no possibility to recover moneys invested in stalled projects and on top the possibility to loose everything....a dream becomes the worse investors nightmare. All the gulf countries will pay the price and expect a diplomatic fight with all countries
Foreclosure is not a solution unless all options are exausted. I think the financial institutions should understand the market realities and at least for completed properties re-structure EMI's for at least a period of 5 years such that the borrower / investor is able to service the EMI's based on his capacity to pay on the basis of rental income generated from the property and back-ending . Central Bank has to play an active role and instruct banks not to present the blank dated cheques taken as security. If the borrower's payment capacity is restricted, presenting a security cheque will only encourage borrowers to leave the country. Therefore, Central Bank should give instructions to all banks for not presenting the cheques instead the banks should re-structure loan repayments so that EMI's are paid (though at a lower rate in the first five years) consistently to keep the loan current and back end the part of instalments that cannot be paid by the borrowers. Government action should be targetted to stop people leaving the country as one borrower that goes will take with him 4 other family members that may have a cascading effect on the economy.
I'm not sure why so many folks around the world (this isn't a phenomenon unique to UAE) seem to think that if they don't honor the commitments they agreed to (such paying their mortgage) that they should then receive special dispensation and forgiveness. Folks, you took a gamble based on the rules in place. Just because those rules weren't in your favor (and I know well they they weren't) doesn't mean that you should get any kind of special privilege when they are enforced (providing, of course, that all other legalities have been followed). Foreclosures are EXACTLY what this market needs. They will drive down prices, they will force banks to re-evaluate their lending practices, and they will force buyers to focus on the basics, one of which is getting a mortgage you can afford, regardless of what happens.
One thing which banks are unable to understand or implement is the need for restructuring. These banks are more happy to put the borrower behind bars rather than recovering money by taking appropraite steps, like restrucring loans, having active discussion. When the high and mighty in the market are unable to meet there obligation on time then what the fault of a common man, Why can't he/she gets its loans restructred based on there present income? Why they are put behind bars? .... If goverment wants to improve the real state sector, then it has to intervene and take appropriate steps for the devlopment of the economy. I hope to see some kind of postive measures from the goverment.
i thnk their should be no forclosure if developer also has delayed project uae government should intervene ..its totally insane that evry thng is favouring developers it never happen in any country
The Government of UAE must first sit together and reframe the entire laws on property. There are many unwanted clauses and un plugged areas .Unelss these are plugged, what ever meausre taken like foreclosure is not going to be effective in long run. These are only short remedies.
These developers are breaking every rule on the book, they cancel project and say it is on "Hold" so they may not give back peopled money. Then they delay beyond all contractual point, they don't even give discount or negotiate on the payments, even if they 100% at fault, you know why? Because they have a big friend called RERA. If RERA was created to provide confidence in realestate market, I don't think they are doing a good job (with exception of recent pushes on STRATA implementation). Most rescent laws are to help the big fat developers take more of investors money and once they sucked them dry, run. There are those of us who are paying for our home that was never delivered while we have paying mortgages. And now they say give me more money or I will take you property free and clear! how fair or even sane is that?