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Abu Dhabi, UAEWednesday 12 December 2018

My Dubai apartment is in negative equity. Can I hand it back to the bank?

The owner bought the Jumeirah Lakes Towers property in September 2008

Keren Bobker advises a reader who wants to negotiate a lower interest rate on his mortgage for a Jumeirah Lake Towers property. Chris Whiteoak / The National
Keren Bobker advises a reader who wants to negotiate a lower interest rate on his mortgage for a Jumeirah Lake Towers property. Chris Whiteoak / The National

I bought a one-bedroom apartment in Jumeirah Lake Towers for Dh1.2 million in September 2008. The payments were initially Dh9,200 per month. Since the rental income was low, I asked the bank to give me a reduced mortgage payment of Dh5,000 per month. This continued for a period of two years and then I went back to the full mortgage payments. By this time I had accumulated Dh200,000 because of the reduced payments with interest. I am now paying the mortgage in full, at a rate of Dh11,200 per month, with 60 per cent of that covered by the rent, and 40 per cent from my own pocket. The apartment rents at Dh80,000 per annum. I also pay the annual maintenance costs of Dh13,000 to Dh15,000 to the developer. What is the way forward with negative equity? I have approached the bank two times to refinance, but have been told the property to loan value needs to be 70 per cent, but it is currently around 100 per cent. If I sold the property, I would not make enough money, and would need to put in another Dh200,000 to fully repay. I cannot change banks, as no other bank is willing to take this on. Current mortgages are around 3 to 4 per cent, while I am paying 9 per cent. Is there anything I can do to get out of this situation legally? Can I just hand the property over to the bank? RM, Dubai

It sounds as though the bank has previously been amenable as they have permitted RM to make reduced interest payments. The bank is not permitted to refinance the mortgage as under Central Bank of the UAE rules the maximum loan to value for any property with a value of up to Dh5m is 75 per cent and clearly no other bank can assist either. Banks do not permit borrowers to just hand over a property when monies are outstanding and RM is legally liable for all costs even if he sells the property. If the sale price is lower than the total outstanding then he must repay the bank in full before he is released from his liability. If he can find a purchaser and settle the bulk of the borrowing, one option may be to come to an agreement with the bank to take out a personal loan for the additional amount that he can then repay over a few years. While it may not be the solution he wants, the repayments on a personal loan for Dh200,000 would be less than the current mortgage repayments on an asset that is not appreciating.

If he decides to retain the property, he has grounds to ask for a reduction in the rate of interest charged as this is significantly higher than the market rate. The bank may well want to charge more than the standard rate due to the risk presented by a loan on a property with no equity but the margin seems excessive. If the bank will not adjust the interest rate to a fairer sum, RM could make a complaint to the Central Bank. Complaints can be made online at www.centralbank.ae, in person at one of their branches, or by calling their Consumer Protection Unit on 800 22823.

I worked for a Dubai company from December 2016 to August 2017 until the company went bust as the owners did not have money to run the business. The owners moved to India and I then received a call from the company's telecoms provider demanding Dh12,000 for an unpaid bill. The provider said I was liable for the payments and that they would send a notice to my current employer. I signed the application form as an employee for the connection, but I was not a partner or a shareholder. My name is not on the license, nor was I an authorised signatory and I have since moved on and cancelled my visa. Am I in liable for these dues? The provider is already in touch with the owners in India. VS, Dubai

I do not believe that VS is liable but I sought legal confirmation to confirm. Bianca Gracias, a legal consultant with Suits & Advisers said: “From the facts stated, it appears that you were instructed by your then employer to take out a connection in the name of the company, and it appears that you simply followed their instructions. If the connection was taken out in the name of the company, then the company is liable for the outstanding dues.

"It appears [the provider] is only attempting to find alternative ways and means of recovery by calling you. The next time they call, inform them that you were only an employee of the company at that time but are not an employee anymore. At the time you were neither shareholder, director nor manager, and since the connection was in the name of the company, their claim vests with the company and not with you.”

Keren Bobker is an independent financial adviser and senior partner with Holborn Assets in Dubai, with over 25 years’ experience. Contact her at keren@holbornassets.com. Follow her on Twitter at @FinancialUAE.

The advice provided in our columns does not constitute legal advice and is provided for information only.