The Dubai government issued a new mortgage law on Aug 19, in a bid to regulate its booming real estate market and shore-up investor confidence after a recent corruption probe rocked the industry.
The 35-article decree issued by Dubai’s ruler, Sheikh Mohammed bin Rashid Al-Maktoum, regulates the mortgage process to protect the rights of lenders and borrowers. It also aims to improve transparency in the vital sector, says Marwan Ahmed bin Ghalita, the chief executive of the Real Estate Regulatory Authority.
“The new law is basically covering the mortgage procedures in Dubai,” bin Ghalita told Reuters news agency on August 19, 2008. “All property purchases happening outside the plan, for example, and all financing, must be registered at the land department. Before, some were and some were not.”
The law, as published in the state-owned newspaper Al-Bayan, stipulates that mortgage contracts be registered with the Dubai Land Department, specifying the value of the loan, the repayment period and the value of the property.
“This is part of the government’s initiative to support and regulate the market,” Arif Al Harmi, chief executive of mortgage lender Amlak Finance, told the daily Gulf News.
Furthermore, the law requires that mortgages on properties in Dubai be sold only by registered financial institutions. The mortgages must also be insured.
“This is a positive step,” Usman Rauf, an analyst at Prime Group, told Reuters. “As investors, you would want as much protection as possible and insure against general risk.”
The law also allows the mortgaging of leased properties for a period of no less than 10 years and no longer than 99 years.
However, property granted by the government to nationals is exempt from the law.
“It gives more confidence to the lender and gives more security for banks,” bin Ghalita said, adding that the land department and banks were now working together to calculate mortgage rates independently from the central bank.
“It will definitely boost investor confidence in Dubai’s property market,” Sudhir Kumar, managing director of Realtors International, told Gulf News. “More and more banks will now enter the mortgage market with renewed confidence as the law streamlines procedures.”
The Dubai property market has been booming since 2002, when it invited foreign investors to buy tax-free properties. The United Arab Emirates’ mortgage business has grown in lock-step, with home loans in the United Arab Emirates jumping 55 percent in the year to March 2008, according to central bank data cited by Reuters.
A Morgan Stanley report cited by the news agency stated that Dubai property prices have increased by 79 percent since the beginning of 2007, although analysts expect a 10 percent decline in prices by 2010.
According to Reuters, the Dubai real estate business had few regulations until issuing its first freehold property law in 2006, which legalised freehold and leasehold property ownership in designated areas. By that time, several major players had taken full advantage of the lack of regulation at the expense of the industry’s reputation.
Mortgage lender Tamweel’s former chief executive and head of investments are currently under investigation for alleged financial irregularities, while an employee of property developer Nakheel is being probed on suspicion of taking bribes.