Dubai Faces Foreclosure for the First Time

With property prices falling, jobs being lost and tightening credit conditions, Dubai is facing negative equity and repossessions for the first time. There are estimates that as many as 40% of the mortgages in Dubai are already in default.

In the past, while house prices were on the way up, buyers who struggled to meet monthly repayments could sell their home at a profit and repay their debts.But times have changed and Dubai’s property prices are correcting along with the rest of the world’s. People are also losing their jobs, lending is considerably tighter than six months ago and mortgage interest rates are resetting on the cheap loans, which means defaults and foreclosures.

“It wasn’t that long ago when to utter Dubai and default in the same sentence would have evoked derision,” said Keith Parker, the conference manager of IIR Middle East, which is holding a training course in March on default management for mortgages. “Today, negative equity and repossessions are becoming increasingly part of the business language. An alarming number of home owners are falling behind on their payments.”

The foreclosure and auction process outlined in the UAE’s new Mortgage Law has yet to be tested, and it seems that it is against the law to repossess a home if it is the only home of the borrower. There is certainly some confusion around the whole situation.

The other issue is the amount of expatriates living in Dubai. Faced with negative equity and no end of the bust in sight, many will simply choose to stop paying and get on a plane home. Interest rate cuts seem likely, but with property prices falling as fast as they went up during the boom, this is not likely to have any effect.