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Banks becoming more flexible
Banks and other lending institutions are becoming more flexible in
dealing with customers in financial trouble, as mortgage defaults in
the UAE are expected to rise with an increasing number of people unable
to service their outstanding debt.
"Some people have turned in
keys to their apartments to us before leaving the country," said Luisa
Baffa, International Mortgage Consultant at Sherwoods Independent
Property Consultants.
"However, I must add that a number of
banks are trying to reschedule payment plans for troubled customers to
revive the relationship," she told Emirates Business.
"Banks
are definitely becoming more reasonable," said Dr Sobhi Agha, General
Manager, The Specialists, a real estate consultancy.
Dubai-based
mortgage lender Amlak Finance had recently said that it has experienced
more loan delinquencies in 2009 than the previous year and expects the
number of defaults on mortgages to grow further this year.
The mortgage market in Dubai is worth Dh20 billion, up from Dh5.4bn in 2007.
"In
these uncertain economic times, it would be surprising if there was not
a rise in the level of delinquent lending in the UAE in parallel with
similar experiences elsewhere in the developed world," said Tom
O'Grady, Partner, Head of Real Estate, DLA Piper Middle East.
"Banks
stand to lose if customers just walk away from their debt commitments,
so they're being flexible and accommodating to customer problems and
requests," added Dr Agha.
"To avoid delay and costs, I would
always recommend that customers contact us before they leave and I hope
they will find our staff understanding and helpful," said George
Lennox, Head of PFS Credit, HSBC Bank Middle East.
Apart from
the usual six-odd months payment deferment, some banks are offering
smaller apartments (and therefore smaller monthly payments) in lieu of
some of the larger apartments bought by some customers who might not
now have the capacity to service that debt.
"Some of the banks
that are doing this are First Gulf Bank, Abu Dhabi Commercial Bank and
Emirates NBD," added another property broker.
"Clearly, where it
becomes apparent that there are financial difficulties, it is in both
the borrowers' and the banks' interest that they work together to
achieve an amicable solution," said O'Grady. "We are working with many
banks, owners and investors/purchasers in such situations, to
reschedule the borrowings, or otherwise reorganise the debt so as to
avoid the necessity of court proceedings and foreclosure by the
banks/financial institution," he added.
"The position will
differ throughout the UAE, as there is not a uniform mortgage code
applying throughout the Emirates," said O'Grady when asked what the law
said in case of a default.
"Dubai passed a new mortgage law in
2008 and this provides a procedure of foreclosure on the part of the
lender who can offer the property for sale by auction after taking
possession following completion of the relevant procedures," he said.
"There
is not a specific mortgage law in any of the other emirates as far as
we are aware and the provisions of the Civil Code of the UAE would
apply. Suffice it to say that the procedures for taking back possession
and foreclosing on a mortgage or other pledged security under the Civil
Code are cumbersome and slow and there are special rules that apply to
nationals," O'Grady added.
"There is no provision under existing
law for banks/financial institutions to merely take over a property and
in all cases they would require a court order in order to take back
possession and dispose of the property," he told this paper.
"The
repossession hasn't really happened yet," said Sherwoods' Baffa, adding
that banks were focusing on assisting customers who are struggling with
their financial commitments.
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