Development activities at the Mazaya Business Avenue at Jumeirah Lakes Towers in Dubai.
Development activities at the Mazaya Business Avenue at Jumeirah Lakes Towers in Dubai.

Foreclosure to be tried and tested



Mehdi Guliyev, an Azerbaijani businessman in Dubai, was expecting to begin renting out two floors of office space in the Mazaya Business Avenue building in Jumeirah Lake Towers by March.

Instead, Mr Guliyev received a cancellation notice from the Dubai Land Department last month saying he had 30 days to respond to a request by the developer to take his property back from him. Along with two other investors, he had already paid about Dh10 million (US$2.7m), or 60 per cent of the cost of two floors in Mazaya Business Avenue, to Al Mazaya Real Estate, but the developer wants the next 20 per cent.

"We really haven't had the money to make the next payment," Mr Guliyev says. "We have told them that once they reach 80 per cent of construction completed, we will try to make another payment - It's unfair to demand money when they haven't completed the project. They don't want to negotiate." Al Mazaya has declined to comment. Legal experts say Mr Guliyev's case is a precursor of the large number of repossession cases that will dominate the courts and regulatory offices this year. The new regulations governing these cases are still unclear, including Law No. 9, but the processes to test the system are under way.

The outcomes of many of these court cases and claims could result in an increase in supply of homes in Dubai because banks and developers would regain ownership of properties. But more importantly, it could help the sector recover by allowing developers to cancel projects that are no longer viable in the depressed economic environment. Property transactions have fallen in Dubai over the last year and prices have dropped by about 50 per cent from their peak in mid-2008.

At the heart of these disputes is the balance of power between buyers and developers. In some cases, the buyer has left the country to escape debts or stopped paying altogether because they can no longer afford it. In other cases, the developer has made no construction progress and missed schedule dates. A judge or regulator will have to decide the outcome of these cases in a way that is considered fair to restore confidence to the property market, lawyers say.

"It's great that there is finally some movement on these cases," says Michael Lunjevich, the head of property at Hadef and Partners. "But if they are going to foreclose on buyers, they need to foreclose on developers who are not building, too. There is a responsibility to look at each side's role and judge accordingly." Few if any people in Dubai have actually had their homes or investment properties taken from them, but the procedures to do this have begun for hundreds of people.

The British bank Barclays said last week it had won several of the first repossession cases to make their way through the Dubai courts. Few details were given about the rulings, but the bank said it showed the property market was "evolving and is poised to come at par with other mature markets of the world". The legal significance of the rulings is also unclear because the country's courts do not have precedents.

A past ruling could influence a judge, but the judge may also make a different ruling entirely. The overall impact of these bank repossessions could also be relatively small. Since mortgage finance only recently started catching on in the UAE, the mortgage market is only worth about Dh60 billion. Most of that exposure is with Amlak Finance and Tamweel, which have stopped issuing new Islamic home finance loans and are in merger discussions.

Estimates of bad loans range between Dh6bn and Dh23bn. Moody's recently estimated there could be as many as 3,240 defaults on mortgages this year. Raj Madha, an independent industry analyst, says banks will probably focus on repossessing from people who are not willing or able to pay any of their outstanding mortgage. "It doesn't really make sense to foreclose on all of the bad mortgages," Mr Madha says. "The court process is relatively untried. The sensible thing is for the bank to be inventive.

"They may have to write off a portion of the loan, or change the schedule of the repayments. They do need to get as much of their money back as they can, but without destroying the customers' ability to pay." The result of these negotiations and discussions is that "a lot less property will come on to the market than people would think", Mr Madha says. The larger effect on the market is likely to come because of the actions of the Dubai Land Department, which has started sending out cancellation notices to buyers after developers reported they had stopped paying on the contracts.

A large number of these were sent out at the end of last month, leading to a rush of legal consultations this month. Cases such as Mr Guliyev's will also test property laws that were introduced last year. Law No 9 of 2009 introduced a sliding scale of refunds for buyers who defaulted on their purchase plans for property in off-plan developments. Neither the Dubai Land Department nor its Real Estate Regulatory Agency has given any official statistics for cancellation requests or developer construction progress in Dubai. But the fact that repossessions are under way is a clear sign that "something is finally happening", says Ludmila Yamalova, a lawyer with Al Sayyah Legal Consultants and Advocates in Dubai. "It's a welcome development overall," Ms Yamalova says. "If people borrowed money and are reaping the benefit of that money, and are no longer able to support the mortgage or payment plans, then the banks and developers are entitled to take that back." Distressed asset funds may have new opportunities to come in and buy properties from banks and, perhaps more importantly, developers will be able to consolidate more of their buyers into fewer buildings, allowing them to cancel projects that have not started construction or are not connected to infrastructure. "We've been in a stalemate situation for a year," Ms Yamalova says. "Until now, it's been a great unknown."

Law No. 9 of 2009 introduces a sliding scale to determine the refunds that property purchasers receive if they default and gives Dubai property regulators more power to oversee cancellations. The law, which amends Law No. 8 of 2007, tries to balance the power between developers and buyers. For instance, if a buyer stops paying but the project is nearly complete, they will lose their investment. But if the project has not started because of conditions outside the control of the developer and it is cancelled, the buyer will be returned 70 per cent of the money they paid. The law also sets out that the Land Department has to oversee the cancellation notices from the developer and allow the buyer a period of time to contest the claims of the developer. Lawyers are awaiting the regulations associated with the law to figure out how to interpret situations that fall into grey area, such as if a homebuyer has paid 80 per cent but cannot meet the rest of his obligations. For that buyer to lose their entire investment would be "unfair", lawyers say.

The 2008 mortgage law sets out rules for default, foreclosure and repossession, but it has so far been untested for foreclosures. It requires lenders such as Amlak Finance or Barclays to give homeowners one month's notice of their intent to pursue a foreclosure. The Dubai courts then review the case and can issue a debt judgment that would lead to the Dubai Land Department putting the property up for auction.

There has been no clear answer from the Real Estate Regulatory Agency or the Dubai Land Department about whether they will issue additional laws, but lawyers are expecting more information on how last year's laws should be interpreted in the coming months. Some of the laws, such as Law No. 9, have inspired as many questions as they answered. Lawyers need more information before they can accurately apply them in property cases.

In Dubai and Abu Dhabi, development came first and the laws have been trying to catch up ever since. In places such as London and New York, property laws have evolved over hundreds of years and have a large body of precedents for legal experts to look to for guidance. In the UAE, the authorities are trying to create an entire body of laws and safeguards for developers and investors from scratch. Dubai has forged ahead with new laws, while Abu Dhabi has still not issued several laws it said it would announce last year.

Both sides tend to agree that the new laws balance power between developers and investors. But it is still a question of debate if the laws are being applied properly and fairly. Many home buyers have had difficulties dealing with the Real Estate Regulatory Agency and Land Department, which are overwhelmed with complaints. @Email:bhope@thenational.ae

How to watch Ireland v Pakistan in UAE

When: The one-off Test starts on Friday, May 11
What time: Each day’s play is scheduled to start at 2pm UAE time.
TV: The match will be broadcast on OSN Sports Cricket HD. Subscribers to the channel can also stream the action live on OSN Play.

Skewed figures

In the village of Mevagissey in southwest England the housing stock has doubled in the last century while the number of residents is half the historic high. The village's Neighbourhood Development Plan states that 26% of homes are holiday retreats. Prices are high, averaging around £300,000, £50,000 more than the Cornish average of £250,000. The local average wage is £15,458. 

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Available: Now

The National's picks

4.35pm: Tilal Al Khalediah
5.10pm: Continous
5.45pm: Raging Torrent
6.20pm: West Acre
7pm: Flood Zone
7.40pm: Straight No Chaser
8.15pm: Romantic Warrior
8.50pm: Calandogan
9.30pm: Forever Young

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Company profile

Name: Steppi

Founders: Joe Franklin and Milos Savic

Launched: February 2020

Size: 10,000 users by the end of July and a goal of 200,000 users by the end of the year

Employees: Five

Based: Jumeirah Lakes Towers, Dubai

Financing stage: Two seed rounds – the first sourced from angel investors and the founders' personal savings

Second round raised Dh720,000 from silent investors in June this year

The team

Videographer: Jear Velasquez 

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Video assistant: Zanong Maget 

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Director: Ruben Fleischer

Stars: Woody Harrelson, Jesse Eisenberg, Emma Stone

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Jeff Buckley: From Hallelujah To The Last Goodbye
By Dave Lory with Jim Irvin

BUNDESLIGA FIXTURES

Friday (UAE kick-off times)

Borussia Dortmund v Paderborn (11.30pm)

Saturday 

Bayer Leverkusen v SC Freiburg (6.30pm)

Werder Bremen v Schalke (6.30pm)

Union Berlin v Borussia Monchengladbach (6.30pm)

Eintracht Frankfurt v Wolfsburg (6.30pm)

Fortuna Dusseldof v  Bayern Munich (6.30pm)

RB Leipzig v Cologne (9.30pm)

Sunday

Augsburg v Hertha Berlin (6.30pm)

Hoffenheim v Mainz (9pm)

 

 

 

 

 

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In numbers

Number of Chinese tourists coming to UAE in 2017 was... 1.3m

Alibaba’s new ‘Tech Town’  in Dubai is worth... $600m

China’s investment in the MIddle East in 2016 was... $29.5bn

The world’s most valuable start-up in 2018, TikTok, is valued at... $75bn

Boost to the UAE economy of 5G connectivity will be... $269bn 

Brief scores:

Manchester City 3

Aguero 1', 44', 61'

Arsenal ​​​​​1

Koscielny 11'

Man of the match: Sergio Aguero (Manchester City)

How to get there

Emirates (www.emirates.com) flies directly to Hanoi, Vietnam, with fares starting from around Dh2,725 return, while Etihad (www.etihad.com) fares cost about Dh2,213 return with a stop. Chuong is 25 kilometres south of Hanoi.