| 12 Nov 2008 |
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November 2008
Dubai's new Mortgage Law, covering relationships between a lender and a borrower is coming into effect this month, at a time when it is most needed. Sunil Kumar Singh asks experts what effects it will have on the property market.
Since the opening of the property market to non-GCC buyers in 2002, authorities in Dubai have come up with a slew of laws regulating the property market. The latest to join the rank is the Mortgage Law (Law No 14 of 2008), which market analysts say could slow down property speculation.
In August the Dubai government issued three laws relating to property: Law No 13, regulating the interim real estate register in Dubai; Law No 14, regulating property mortgages and relations between mortgage lender and the borrower in Dubai; and Law No 28 cancelling last year's Law No 30 appointing a special judicial committee on property dispute resolution for Dubai.
Experts believe that Law No 14, that was published on August 31 this year and which will come into effect this month, will also stop some investors from flipping property to resale before completion, thus inflating market prices.
Right chord
Experts further believe that the recent introduction of new the law, clarifying the rights and obligations of developers, buyers and banks, will provide greater regulation within the property market to protect buyers and will significantly curb speculation in the market.
Says Tariq Ajaz, Senior Vice President, Corporate Services, Amlak Finance, Dubai: "It was very important to come up with such a law in order to stabilise as well as to bring in clarity in the real estate market. The Law No 14 will go a long way in protecting the interests of the end-user, and reduce the amount of speculation in the market.
"Developers who haven't concentrated too much in the market or aren't serious players may move elsewhere or reduce their activity, which is a welcome move to the Dubai market as it'll have more genuine developers."
Law No 14 completes a range of property laws issued in recent years. For instance, in 2006 there was the Property Law, and last year, the emirate had issued the Guarantee Account Law, Escrow Law, Strata Law and Condominium Law among others.
Says Lynette Brown, Partner, Al Tamimi and Company, Dubai: "The issuing of these new property laws is a positive move and will boost both the investor's and end-user's confidence in the property market amid the current global economical turmoil."
The mortgage law makes it mandatory that the interests of a buyer and mortgagee bank must be registered with the DLDDLD
, and a mortgage will not be valid unless it is registered with the DLDDLD. "The mortgage must specify the amount which is secured by the mortgage, the value of the property being mortgaged, to whom the money has been lent and the mortgage term," says Brown.
Under the new mortgage law, borrowers have the right to administer mortgaged property and collect its yields and revenue until it is sold at public auction following a default under the mortgage financing, she says, adding: "Upon default, the bank must give the borrower 30 days notice through the Notary Public before commencing execution proceedings. In case of the loss or damage of mortgaged property, the mortgage shall automatically attach to substitute assets so the lender can recover his claim, in order of priority".
Analysts add that the mortgage law has come at the right time as the mortgage sector in the UAE is rapidly growing and mortgage financiers face some challenges.
As Wasim Saifi, Group CEO, Tamweel, the real estate finance firm, says: "The fundamentals of the UAE property market growth are healthy. However, given the global credit crisis, mortgage providers are facing challenges to raise funds due to the mismatch between available funding sourcing and finance tenors. This creates a need for mortgage refinance entities and long-term liability instruments."
The mortgage market in the UAE is worth Dhs20 billon ($5.4 billion), according to John Charcoal Dubai, a Dubai based mortgage advisory firm, and is likely to triple to Dhs64 billion ($17.4 billion) during the next three years with more than 71 per cent of the UAE investors requiring a mortgage to finance their property purchase.
Further, a report by Tamweel says that mortgage demand in the UAE is likely to reach 40 per cent of property sales value by 2011 and the estimated total value of off-plan and resale properties will touch Dhs430 billion ($117 billion) by 2011.
In this scenario, experts believe that Law 14 of 2008 will be welcomed by the growing realty sector of Dubai.© Gulf Business 2008
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