Dubai: Dubai's mortgage sector now needs the attention of the emirate's property market regulators, according to real estate developers and legal specialists.
They warn that if and when the property market flattens, cases will crop up where borrowers default on their mortgage payments.
Drastic effects
Unless banks are confident that a system exists that guarantees they will recover their money, they will simply stop lending - a situation which could have "drastic" effects on the market, they say.
"There haven't been any major defaults in the last three years because the increase in property premiums means if borrowers get into difficulty, they put the property on the market, make a healthy premium and repay," said David Nicholson, general counsel at Dubai property giant Nakheel.
"The test will come when the market flattens -- and it will flatten. Homeowners may get into difficulty, interest rates may rise and they might not be able to make their mortgage payments. How would the mortgage be enforced?"
Nicholson said Dubai currently lacks a clear cut process that makes enforcement practical.
"It's a process that has to be undertaken through the courts, but the courts system was developed for general claims, not to take into consideration the special aspects of mortgages," he said.
He called for a separate foreclosure process outside the court system -- one that is fair and enforceable by an authority such as the Land Department or the Real Estate Regulatory Agency (RERA).
Three-year test
"In the next three years the market will be tested and unless banks are able to recover their money in a default situation, they will simply stop lending and that will have a drastic effect on the market," he said.
Dubai would do well to follow the example of neighbouring Sharjah in regulating its mortgage sector, Shahram Safai, partner at Dubai-based legal consultants Afridi & Angell, told Gulf News.
"Mortgages in Dubai are covered in the civil code, which is a national federal law, but there is no mortgage law specific to Dubai. However, a wonderful mortgage law exists in Sharjah," he said.
"Something similar to that, which discusses registration of mortgages, enforcement and detailed mortgage contracts, is needed and should come."
Legal analysts say Dubai has made great strides in tightening the property market's regulatory framework, but stress that the job is far from over.
In addition to a mortgage law, a strata law is needed, as well as regulation in the timeshare market, they say.
