Dubai repossessed auctions

The Dubai Land Department has sold eight foreclosed properties at auction in the first bulk sale of repossessed homes in the emirate.

Location, location, location:

The sale may clear the way for lenders to offload millions of dirhams in repossessed property.

The homes sold between Dh740,000 (US$201,450) and Dh6 million, well above the minimum prices.

"It was good news to see the [foreclosure] process start to work like other jurisdictions," said Jody Glenn Waugh, a partner with Al Tamimi, a law firm.

Hundreds of properties are in the foreclosure process in Dubai but they have been slow to come up for auction, where sales are controlled by the Land Department. In May the department auctioned a repossessed villa in The Springs for Dh1.22m, the first and only sale of a foreclosed home under provisions of a mortgage law approved in 2008.

The sale came more than a year after the British bank Barclays won a court order to repossess the property. "Judgements have been flowing for some time now, but there have been delays getting the property to auction," Mr Waugh said.

Dubai's 2008 Mortgage Law No 14, was designed to speed up the foreclosure process, giving lenders a chance to recoup their losses on defaulted property.

Instead of going through civil court, under the new law lenders could execute a foreclosure through a simple hearing before a judge, after giving the client proper notification.

After the judge's order is issued, the property would be auctioned by the Land Department.

But the system has been slow to develop, industry executives say. In addition to the process for obtaining judgements, there were issues establishing values for property.

Some officials were concerned about flooding the market with low-priced homes at a time when prices are already 50 per cent below peak levels in some places, industry experts say.

The Land Department had previously tried to auction a handful of other properties, but they did not sell.
"Initially reserve prices were just too high and now they are far more realistic and as a result they are attracting buyers," said Richard Paul, the head of valuations for Cluttons.

International mortgages were raised for some of the properties.

The auction may prompt lenders to start more foreclosure proceedings. Banks and mortgage companies have been focusing more on renegotiating deals and using foreclosure as a last resort, industry analysts say.
"Ultimately [the auction] provides banks with more confidence that if the buyer defaults, they can go through the process," Mr Paul said.



Long-term, the auction process may also prod mortgage providers to provide more home loans in Dubai, where lenders are still wary.

"As the [foreclosure] system becomes more streamlined it will give lenders greater comfort to be more aggressive in lending," said Jean-Luc Desbois, the managing director of Home Matters Mortgage Consultants.

The Land Department staged three auctions last week with 19 properties for sale, including homes in non-freehold areas. The bulk of the eight repossessed properties sold were villas in the Al Thnnyah and Wadi Al Safa areas, plus two apartments in Dubai Marina, according to a sale brochure.
All the properties sold for more than the reserve price, with bidding brisk, said people who attended the auction. A villa in the Al Thnnyah neighbourhood listed at Dh3.5m sold for Dh5.6m.

"It was well attended," Mr Desbois said. "The place was full." But auctions are still rare in the UAE, he noted."Investors and buyers are becoming more aware of the ability to purchase property under auction," Mr Desbois said.

"It is a very new concept for the UAE."

Who is recovering in the Worlds Housing markets?

According to data compiled by the Economist, only one national housing market has recovered to “fair value” after the real estate boom of the late nineties and early 2000's

Disregarding the housing markets in Germany and Japan, which did not witness a property boom in this period, the US is now the only global market (which the publication analyses) where prices are below the long run price to rental income ratio.

South Africa, seems to be OK, but its very up and down even though slaes seem fine in the lower brackets and banks are offering mortgages albeit tentatively.

According to data compiled using the Case Shiller national index, prices are now 11.5% below “fair value” which compares to overvaluations of 48.5% in France, 39.2% in Spain and 27.8% in the UK.

Although there is some debate over the Economists measure of “fair value” (house prices are more a function of affordability and therefore real incomes and interest rates rather than rental incomes) the conclusion is probably a sound one. The US housing market is in better position than most Western markets.

At the turn of the year, we tipped the US market as one of the best markets for investors and agents. The news since then has been far from positive with prices continuing to decline in most regions (although sales volumes have picked up in many states such as Florida)

The best property market in the world?

Well you certainly can pick up awesome deals for properties in possession and these lists are easy to come by, with 100% homeloans and cheapper trasnfer or no transfer fees.

Although the social consequences have been awful, in pure economic terms, the US property market is arguably one of the best functioning real estate markets in the world.

The US fell earlier and more rapidly than almost every other national market. A big reason for this is the US system of non-recourse loans. Home owners in negative equity can walk away from their debts and developers and lenders have no recourse to reclaim the debt. The result has been a flood of supply and sharp price corrections.

Almost every Western economy is going through a process of painful debt reduction. There are only four ways out:

Save more (austerity at both a personal and government level)

Earn more (increase real incomes and/or economic growth)

Inflation

Debt default

Through a process of mortgage debt default, the US has put itself in a strong position to recover strongly from the credit-bubble-inducued recession (although it still has severe sovereign debt issues).

As Robert Shiller points out, US house prices may decline another 10-25% so the crisis is not over but its long term position is much healthier than most European markets.

The UK and Spain for example face a long period of “deleveraging” which means either high inflation, austerity or a sharp rise in repossessions. Without a mix of all three for a sustained time period, there can be no return to a “normal” market and that means no short-term bounce back in the lifestyle market of overseas property.

So Dubai seems to be settling into its role!

Dubai has witnessed completion of 129 projects since 2009 with 237 out of 450 projects likely to be completed in due course, according to information contained in the government’s bond prospectus posted on the London Stock Exchange.


Quoting Real Estate Regulatory Agency (Rera), the regulatory arm of Dubai Land Department, the prospectus said that 217 property projects have been cancelled as of May 31.

Currently, there were 455 registered developers and 893 registered brokers in Dubai as of May 31. Under the Tayseer (government-guaranteed funding project), 114 projects have been registered.


The prospectus further states that “following the significant price declines since the fourth quarter of 2008 (in part reflecting the withdrawal of speculative buyers from the market), prices have since stabilised in completed developments.”

According to Dubai Statistics Centre, 1148 buildings worth Dh5.7 billion were completed in the first quarter.

So if you want a mortgage for a property in Dubai it is very available today.

The real estate and business services sector accounted for Dh40.3 billion, or 13.7 per cent, of GDP in 2010. The sector registered declines of 19.8 per cent and 2.6 per cent in 2009 and 2010, respectively, having grown by 30.9 per cent and 1.1 per cent in 2007 and 2008, respectively. Meanwhile, the construction sector accounted for Dh27.5 billion and 9.4 per cent of GDP in 2010. The sector fell 19.5 per cent and 14.7 per cent in 2009 and 2010, respectively.