Business | Property
New mortgage law is a positive move
Recently the government of Dubai issued a new mortgage law, aimed at increasing certainty for foreign (non-UAE and GCC national) owners and 'off-plan' buyers.
- By Ashley Painter and Hani Nassef, Special to Gulf News
- Published: 23:12 September 5, 2008
Recently the government of Dubai issued a new mortgage law, aimed at increasing certainty for foreign (non-UAE and GCC national) owners and 'off-plan' buyers.
The law clears up a number of previously grey legal areas, but who does it increase protection for and how?
The new law (No. 14 of 2008) is due to become effective in coming weeks. It should stand to regulate the relationship between the mortgage lender and the mortgage borrower and other lending parties.
The mortgage sector has seen huge investment and growth over the last few years and particularly since foreign ownership rules were relaxed. The new law is particularly directed at such buyers allocated ownership rights in certain designated areas. UAE and GCC nationals are subject to different legal regimes.
The new law will protect both purchases of and lenders for existing properties and 'off plan' property too. Most importantly it will benefit buyers of off-plan developments, reducing the uncertainties and legal concerns associated with such transactions. This is a great move and is something that the legal industry has been waiting for, for some time.
As with transfers of real estate, mortgages are only effective when they are registered at the Land Department. The new law will assure that applications contain details of the value of the property, the amount of the debt, the term or period of the mortgage and the names and addresses of the mortgager-borrower and mortgage-lender. The law will also require that a mortgagee annotation is then made to the letter and forms part of the register. This stipulation, often seen in more developed markets, will serve in regulating and recording real estate borrowing activity in the UAE and protects all parties involved.
Improvement
One of the most important improvements to note is that the new law states that mortgage lenders obtain priority over other unsecured lenders in the case of an enforcement. If a borrower defaults on his mortgage, the lender must serve him a notarised notice before proceeding to sell the property, by way of public auction, after making an application to the execution judge.
In such a case, the borrower may delay an enforcement process for a period of up to 60 days if they can convince the execution judge that they can discharge the debt within that day period and that a sale of the property causes serious damage to the borrower. Both of these conditions must be met to the satisfaction of the execution judge. Again, this step protects both the lending industry, providing them with the power to act quickly on defaulting debt, a prudent risk management measure; As well offering a safety net for borrowers.
Whilst the new law preserves the principle of a "court-assisted" enforcement process, in other countries there are "self-help" remedies where a lender can sell the property if a borrower defaults, without having to go through a court process. There are various protections built in to the process to safeguard a borrowers' interest. Given the enormous growth in real estate deals in Dubai and the convenience of these "self help" lender sales, it remains to be seen whether the Dubai government moves towards a similar scheme in the future.
As with any new law, all market participants: commentators, government and others interested in the real estate sector are going to carefully watch the impact on actual market practices.
This law is a positive move protecting important players involved in the UAE real estate sector. It should prompt increased confidence in the market here and will undoubtedly influence whether further changes necessary to further the Dubai government's objectives as the real estate market continues to develop and mature. We can also look forward to seeing bankers and financiers in this arena innovating new products to meet the changing market requirements.
- The authors partner and associate, Clyde & Co.
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