There has been a flurry of media excitement this last week focused on the property market in Dubai now that Tamweel, Dubai’s second biggest Islamic mortgage company by assets, won the right to repossess five homes in the emirate. Headlines have suggested that Dubai will become the next foreclosure hotspot where investors and speculator will be able to buy bargains.
However, talking up the repossession property market in Dubai is very unwise for many reasons which we will explore in this report. For a start, any repossessed homes will be a long time coming back to the market – what’s more, speculators and investors got Dubai into the mess it’s in, therefore you can guarantee that the powers that be will not want to welcome them back by offering them a veritable flood of repossessed homes for sale at bargain prices.
If you’re looking for a more realistic take on the property market in Dubai now that homes are finally being repossessed when buyers default on mortgage payments, you will find it here. Any fantasies you harbour for picking up an offshore island in Dubai for a rock bottom price may be damned however!
It was back in January of this year that talk began about the concept of a foreclosure market in Dubai. This was following Barclays Plc’s court win to allow them to repossess homes if buyers defaulted. By going to court Barclays were testing the 2008 Mortgage Law in Dubai which had detailed what could/would/should happen in the event of a default on a mortgage; and the Barclays ruling in January proved that the law was effective. In theory this now means that any lender can give homeowners 30 days notice of their intent to pursue foreclosure upon default.
Now, the significance of the most recent Tamweel ruling this month is that Tamweel is an Islamic lender of Islamic mortgages, the rules for which differ. So, in theory the ground has been set and anyone who already owns a mortgaged home in the emirate needs to know that they can and probably will be pursued for a) payment of the mortgage or b) repossession of their home if they default on the loan – and it doesn’t matter whether they are mortgaged with a Western style finance produce or an Islamic mortgage.
You can see why this has excited many I am sure. The fact of the matter is there are many who are struggling with the debt on their now seemingly over-priced homes in Dubai. Some are in up to 50% negative equity, and because you are no longer granted a permanent visa just because you own a home in the emirate, if you lose your job you have 30 days to get out of the country and this can make the practical management of debt and mortgages in Dubai difficult.
It is highly, highly likely that there will be a lot of bad mortgage debt in Dubai – but this does not automatically translate into the fact that Dubai will now become a hotspot for repossessed bargain property.
Because there is a cultural stigma in Islamic society against forcing people from their homes for a start – and this should not be underestimated. Secondly, the developers know that if they get their properties back and then put them up for sale again they will damage the resale and new homes markets at a time when no more damage needs to be done to them!
In addition to this, repossessed homes could force the valuation of real estate in Dubai down even further and greatly undermine the economy again. Furthermore, speculators buy repossessed properties – and speculators brought Dubai’s market to this critically negative point in its evolution already – and so no one in a position of power and authority is going to do anything to enable speculators to once again cash in so aggressively on Dubai’s real estate market, And finally, there’s a large gap between a mortgage law being proven and a flood and flurry of repossessed homes coming to auction.
In other words, the current speculation that Dubai is about to become a global hotspot for foreclosure property is inaccurate and misleading.
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