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Tue 5 May 2009 02:49 PM

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UAE lenders expect to see rising mortgage defaults

Amlak Finance chief says deliquencies on mortgages are growing.   

Mortgage defaults are expected to rise in Dubai this year due to the global downturn, Amlak Finance, an Islamic lender being rescued by the government, said on Tuesday."We are experiencing more delinquencies in terms of mortgages in 2009 and it will be very challenging to manage going forward," Max Hamidi, chief financial officer at the Islamic mortgage firm, said at a conference.

"The default on mortgages is growing and it will probably grow further," he said.

Dubai's real estate indsutry saw prices tumbling 41 percent in the first three months of 2009, according to property consultants Colliers.

The slowdown has led to billions of dollars of project cancellations.

A decision on how to restructure troubled Islamic mortgage firms Amlak and Tamweel will be made in "weeks", Tamweel's chairman said late last month.

Trading in shares of both companies has been halted since the government announced in November it was merging them with two state-controlled banks.

The Islamic home financing companies developed their businesses during an economic boom that was kicked off by the emirate's decision in 2002 to allow foreigners to invest in properties on a freehold basis. (Reuters)

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shehryar iqbal 11 years ago

The best step forward at this time would be in two simple steps . 1) Reduction of interest rates. 2)Big developers like Emaar and Nakheel should revise their Maintenence charges which in some cases are as high as 30,000 Dirhams for a one bed room in places like downtown.My friend has a property in Discover Gardens and he is shocked by the chiller charges , they are simply too much. Im in a small but very beautiful town in New Hampshire U.S.A and my friend bought a 3 bedroom on the hill side for 330,000 USD that comes to around 1 million Dirhams, I would think again why should i be buying property in the U.A.E , infact as soon as i return i will sell all the properties that i worked very hard for and buy something in the U.S.A and by the way they dont change rules over night here and your investment is much more secure.

jac 11 years ago

It is no wonder if the banks have an incresing default on mortage since they act like sharks in the market. Each 6 month they call you to tell you that they must increase the interesst rate by 1,25 to 1,4 % !! And the explain that the dollar is weak and the market bad so they need to increase. And if you explain that you are able to pay the old rate but never the new rate then they just say THATS YOUR PROBLEM! Very professional way to put the client in the corner and to risk that the next mortage failed.In this way there will be more and more defaults. Its sad for the costumer to learn in this way that even the banks here in UAE are very unprofessional. The interest rate in europe gos down in UAE up to the sky. Welcome in the default mortage town!

Mohamed N. Zaman 11 years ago

‘The default on mortgages is growing and it will probably grow further’. And I am sure it will. When the mortgage interest rate is below 2% in many western world countries it is 7% to 9.5% in the UAE. The banks come up with an excuse very 3 to 6 months to increase the interest rate. All they are trying to do is to kill the ‘golden goose’ in order to get the golden eggs all at once. At a time like this when everyone is hard hit by recession and rightly expecting price reduction of all the items including the cost of borrowings instead the consumer is receiving extortionate bill from the banks. In other words the banks are forcing the innocent borrowers to become defaulters. Moreover, the current high interest rate has serious negative impact on the property market. Nobody is willing to invest in properties by borrowing money at the prevailing rate. The banks are apparently interested in short term gains instead of long term interest of the property market in the country. I have serious doubts about the role the banks are playing in reviving the economy of the UAE.

Carmel 11 years ago

I think it's the banks that have to learn some mighty hard lessons here and realize that they are not fast becoming the law unto themselves. When the bailouts stop bailing them out what happens next. Maybe some of those who default on their payments can buy back their properties at a much cheaper price because real estate is going down and probably will continue to drop further. What happens when the bank has to rid itself of these houses, apartments, villas etc etc it has acccumulated in bad debt. It has to get rid of them making them once again more cheaper to buy because that's what they, the banks allowed the price to fall out of the real estate sector. Just like a chocolate lover who realizes they have accumulated way too much chocolate to eat, starts eating it to get rid of the excess only to realize they are fast becoming very very sick.

Shivangi 11 years ago

I have taken mortage from Amlak Finance and today i get a email from them with 1% rise in the interst rate.. ooops sorry profit rate. how can they think abt raising interest rates with the economic downturn?? To have less people deafulting the need to pull down their interest rates. When i called them they had no reply y they hv increased the rates. Truly maddening....

Justine 11 years ago

I can't believe in a recession that they are still increasing the interest rates - it just shows sheer greed. Where's the transparacy that Sharia Law is supposed to provide? Every other country lowers the mortgage interest rate to help the economy, but as usual it's take, take, take, take in Dubai and then they wonder why they have a problem.....

macca 11 years ago

Increase interest rates, increase the defaults. But if we dont pay our mortgages we will go to jail, so we have to pay. Every ex pat has always had a "Plan C". Its called go home !! Defalts are already through the roof in Dubai, this summer see a tidal wave unless interest rates are dropped in line with the US. We have a saying in the west : greedy pigs are the first to be slaughtered because they are the fattest.

Mohammed 11 years ago

This country is not governed by Sharia Law. If it was noone would not have been able to take out a loan on interest in the first place. I have read in an Islamic Books on Sharia that according to the Shariaa if a man goes to his neighbor and borrows 1 million dirhams at 10% interest payable in a year and signs a contract promising he will and then in a years time should he only pay back the capital and the neighbor take him to court and present the contract which he signed promosing to pay the 10% interest ontop of the capital ... the court would rule that the contract is invalid and unenforceable because it contains interest which nulifies its legitamacy. The court can force the man to pay the capital but cannot force the man to pay the interest just as they cannot force the man to drink alcohol or fornicate just because he signed a contract saying that he would. That is the justice of Shariaa law. The Messenger of Allah (Peace be upon him) said: "Riba is of seventy different kinds, the least grave being equivalent to a man marrying (i.e., having sexual intercourse with) his own mother."

MK 11 years ago

It is not that a customer wants to default but it is the greed of bank and their non-listening attitude to acknowledge and resolve a problem that makes the customer in that vulnerable position since he is left with no other choice. RAKBANK has given a mortgage to me via wrong communication and misinformation by its employee just because he wanted to make a sale of property owned by the bank. Not only this, they have also charged wrong fees in respect of this sale.I brought the matter of all miscommunications to the bank and provided them with all available evidences but all went on deaf ears and they are not at all ready to listen to me and provide any help. However they have sacked their employee.Is this an ethical business?? You are left with only two choices either to go to court (which is very expensive OR to default !!).Is there anyone to listen to these problems?? Govt. must do something to deal with such cases to reduce the ongoing problems. There should be a dispute redresal committee (like Rent committee) to listen to the greviences and resolve outside the court.