x Abu Dhabi, UAEThursday 27 July 2017

Lenders leave home buyers in limbo

Home buyers are caught in the middle of disputes between lenders and developers.

Dubai Bank was one of the most active home lenders during the building boom and one of the hardest hit by the downturn. Gabriela Maj / Bloomberg News
Dubai Bank was one of the most active home lenders during the building boom and one of the hardest hit by the downturn. Gabriela Maj / Bloomberg News

Troubled mortgage providers in Dubai have stopped making payments on some developments, leaving home buyers caught in the middle of disputes between lenders and builders.

In many cases the lenders are refusing to pay instalments on delayed or partially completed projects, claiming the developers have not met construction milestones. Buyers are often unaware the payments have not been made on their homes.

One home buyer, who asked not be named, recently learnt that his mortgage provider, Dubai Bank, was late paying Dh239,000 (US$65,070) for his apartment in the second phase of the Remraam development under construction in Dubailand.

The developer, Mizin, a subsidiary of Dubai Property Group, copied in the buyer on a letter to the bank, warning of a Dh100 a day penalty.

"I was shocked that the bank was not paying," said the buyer. "If the bank is not in compliance in the end I know I will be affected. They will blame me, not the bank."

Sharia-compliant lenders such as Dubai Bank technically own the mortgaged property and are responsible for making the payments to developers. Buyers start making payments only when the property is handed over.

Dubai Bank, Amlak Finance and Tamweel were the most active home lenders during the building boom and they have been the hardest hit by the downturn. Dubai Bank was taken over by the Government last month, while Amlak is in the midst of restructuring after reporting a Dh54.7 million loss for the first quarter of this year.

In its quarterly filing, Amlak reported it had not paid Dh23.2 million in payments due to developers on investment properties, compared with Dh9.2m it owed last December.

But while lenders such as Amlak are not making payments on some accounts, they are pursuing customers who default, often threatening to cash security cheques and start criminal actions.

Dubai Bank and Amlak could not be reached for comment.

"I don't think the banks have a problem with cash flow," said Jaap Meijer, a senior analyst with Alembic HC Securities. "They may want to make sure the building is meeting the specifications, and that's why they are slower to pay than they used to be."

Lenders have delayed making final payments on dozens of residences in the Skycourts project, a development with 2,800 apartments in Dubailand, even though buyers without mortgages started taking possession this year.

"The banks have their own procedures," said Mohanad Al Wadiya, the managing director of Harbor Real Estate, which represents the project. Shahid Qadeer, a corporate performance specialist, said Dubai Bank told him it would not agree to make the final payment on his apartment in Skycourts unless he signed a waiver exempting the bank from any liability caused by the developer. The apartment did not have proper gas and sewerage hookups, he said the bank told him.

Mr Qadeer said he refused to sign the waiver and the bank eventually relented and made the final payment. "I was caught between the two [the developer and the bank]," he said. "I'm definitely relieved."

Financial institutions are closely tied to many projects in Dubai, which are often built by developers backed by the Government. In some cases, the lenders bought units then resold them to consumers, who financed the purchase through the lender, complicating the relationships between developer, lender and buyer.

Another buyer in Remraam, who also asked not to be named, asked the developer to refund his Dh127,000 deposit when it became clear his portion of the development was not going to be built. But he was told the developer would not consider a refund because his lender, Amlak, was not making payments.

"They refuse to talk about termination because they claim I'm a defaulter," the buyer said. "It's a very clear stalemate."