Mortgage law will plug loopholes

Dubai Government has issued the Mortgage Law that will help regulate the emirate's growing property sector. The 35-article decree issued by His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of the UAE, comes after a series of laws and bylaws. It is expected to reshape the sector and ensure best practices in property and mortgage transactions. The law, which comes into effect 60 days after its publication in the official gazette, stipulates that mortgage contracts be registered with the land department, specifying the size of the loan, the repayment period and the value of the property to which the loan is linked.

The law requires that mortgages taken out on properties in Dubai be sold by registered financial institutions, and be insured. The law also requires the borrower and the lender to present full financial documents when the mortgage is registered. However, property granted by the government to nationals is exempt. Dubai spearheaded the Gulf's property boom in 2002 by opening the sector to foreign ownership. As a result massive liquidity began to penetrate the emirate's vast sand dunes to transform them into master planned communities - in the absence of a proper law. However, in 2006 the government issued the first freehold property law, which legalised the freehold and leasehold property ownership in designated areas.

The widely expected move couldn't have come at a better time, especially amid a crackdown by the Dubai government on corruption, with executives in major real estate and financial firms facing investigation.

In the absence of the regulations, however, a number of players were taking advantage of that setting by duping investors and giving the sector a bad name. A good number of investors have burnt their fingers in the property sector. The law will help the government to straighten things up.