The Dubai Land Department has sold eight foreclosed properties at auction in the first bulk sale of repossessed homes in the emirate.
The sale may clear the way for lenders to offload millions of dirhams in repossessed property. The homes sold between Dh740,000 (US$201,450) and Dh6 million, well above the minimum prices.
"It was good news to see the [foreclosure] process start to work like other jurisdictions," said Jody Glenn Waugh, a partner with Al Tamimi, a law firm.
Hundreds of properties are in the foreclosure process in Dubai but they have been slow to come up for auction, where sales are controlled by the Land Department. In May the department auctioned a repossessed villa in The Springs for Dh1.22m, the first and only sale of a foreclosed home under provisions of a mortgage law approved in 2008.
The sale came more than a year after the British bank Barclays won a court order to repossess the property. "Judgements have been flowing for some time now, but there have been delays getting the property to auction," Mr Waugh said.
Dubai's 2008 Mortgage Law No 14, was designed to speed up the foreclosure process, giving lenders a chance to recoup their losses on defaulted property.
Instead of going through civil court, under the new law lenders could execute a foreclosure through a simple hearing before a judge, after giving the client proper notification.
After the judge's order is issued, the property would be auctioned by the Land Department.
But the system has been slow to develop, industry executives say. In addition to the process for obtaining judgements, there were issues establishing values for property.
Some officials were concerned about flooding the market with low-priced homes at a time when prices are already 50 per cent below peak levels in some places, industry experts say.
The Land Department had previously tried to auction a handful of other properties, but they did not sell.
"Initially reserve prices were just too high and now they are far more realistic and as a result they are attracting buyers," said Richard Paul, the head of valuations for Cluttons.
Land Department officials could not be reached for comment.
The auction may prompt lenders to start more foreclosure proceedings. Banks and mortgage companies have been focusing more on renegotiating deals and using foreclosure as a last resort, industry analysts say.
"Ultimately [the auction] provides banks with more confidence that if the buyer defaults, they can go through the process," Mr Paul said.
Long-term, the auction process may also prod mortgage providers to provide more home loans in Dubai, where lenders are still wary.
"As the [foreclosure] system becomes more streamlined it will give lenders greater comfort to be more aggressive in lending," said Jean-Luc Desbois, the managing director of Home Matters Mortgage Consultants.
The Land Department staged three auctions last week with 19 properties for sale, including homes in non-freehold areas. The bulk of the eight repossessed properties sold were villas in the Al Thnnyah and Wadi Al Safa areas, plus two apartments in Dubai Marina, according to a sale brochure.
All the properties sold for more than the reserve price, with bidding brisk, said people who attended the auction. A villa in the Al Thnnyah neighbourhood listed at Dh3.5m sold for Dh5.6m.
"It was well attended," Mr Desbois said. "The place was full." But auctions are still rare in the UAE, he noted.
"Investors and buyers are becoming more aware of the ability to purchase property under auction," Mr Desbois said.
"It is a very new concept for the UAE."