The chances of property buyers taking out multiple mortgages and then defaulting on their payments will be reduced under Dubai's new mortgage law, analysts believe. Under the law, which could be in force within three months, mortgages will be considered null and void unless they are registered with the Dubai Land Department.
By creating a database of mortgages in the emirate, lenders will be able to assess whether clients already have large debts with other financial institutions. "At this point in time, the market is not linked," said Peter Penhall, the chief executive of the property portal Gowealthy.com. "With the greatest respect to the banking system, Amlak might not be in a position to know what I've done with HSBC."
Mr Penhall said lenders were able to take out mortgages with a variety of banks and become "completely over-geared", but the new law would ensure this did not happen. "It will prevent the situation where someone buys 40 properties, where he is clearly unable to finance and service those 40 bonds, but just hopes that he can flip out of any potential problem," he said. In mature markets, property transactions are processed through a lawyer and a conveyancing firm. Both the transaction and the mortgage are officially registered in a deeds office, while credit-rating agencies assess a borrower's risk.
The Emirates Credit Information Company Limited (Emcredit) was formed in Dubai in Jan 2006 to perform this function, but according to analysts, it did not yet have a sufficiently comprehensive database. Chris Green, the managing director of Independent Finance, a Dubai-based mortgage adviser, said banks were unable to access details of an individual's debts with other lenders as easily as they would like.
"Even though they have the Emcredit bureau, it is still in its infancy stage and until more people contribute towards the information base, it's going to be difficult," he said. In the absence of a central database of mortgages, banks rely on borrowers' bank balances to identify existing loans and debits. According to Mr Green, this method gives banks "a pretty good feel" of an individual's monthly exposure, but not to the level they would like.
The new requirement for mortgages to be registered would give lenders the publicly accessible information they needed, he said. The mortgage law, which will come into effect within 60 days of being published in Dubai's official gazette, will also introduce a process to deal with foreclosures in the event of borrowers seriously defaulting on their repayments.
rditcham@thenational.ae