Private sector auctions of foreclosed properties are helping Dubai's banks resell repossessed homes - helping them clear their loan books of bad debts.
Private sector auctions help to accelerate repossed UAE home sales
Private-sector property auctions are helping to speed the sale of foreclosed homes for banks.
While foreclosing upon a property was a relatively short process lasting around six to nine months, selling repossessed homes has proved difficult, with only a handful of sales taking place since Dubai's property crash.
But recent private-sector property auctions had vastly accelerated the process, said Vivek Bali, the head of retail credit at Mashreqbank. They were "helping banks clear the properties and make sure that they get their realisable value", he said.
A law paving the way for auctions of foreclosed properties was passed in 2008, but it took a further three years for the Dubai Land Department to complete its first such sales in late 2011 - causing frustration among lenders.
"Finally, in December, came privatisation," Mr Bali said. "Once the property is auctioned, four weeks thereafter the bank gets the money."
Several auctions have already taken place, with the latest due to take place on the website of Emirates Auction Company, a private sector auction house.
A total of 23 foreclosed properties and plots of land are due to go under the hammer today at 4pm.
Emirates Auction previously took a gong from the Guinness World Records for selling the world's most expensive licence plate to an Abu Dhabi citizen for Dh52.2 million (US$14.2m) in 2008.
Property foreclosure came into sharp relief during the financial crisis in the United States, when a wave of repossessions after the bursting of the subprime property bubble led to court battles and scorn for banks' lending practices.
But with foreclosure proving much more difficult in the UAE, banks have struggled to clear bad debts incurred when Dubai's property boom turned to bust at the onset of the global financial crisis.
Money set aside to cover bad debts in the financial system totalled Dh66.4 billion at the end of November, according to the latest available data from the Central Bank.
While many had tried, carrying out auctions of foreclosed properties had proved easier said than done for property companies, said Stuart Raine, a property consultant at Cluttons in Dubai, which specialises in land sales.
"Dubai Land Department have been holding auctions of repossessed property in Dubai for the last two or three years but private firms have found it very hard to set up property auctions in the UAE, partly because of the huge amount of red tape involved," he said.
Demand for repossessed properties would likely be high, said Layla Clarke, a property consultant at Asteco, which is currently setting up its own online property auction service in Dubai alongside the American auctions specialist LSC.
"There is a lot of appetite for repossessed property to be sold online through auctions in Dubai," she said. "Lots of buyers live outside the country and this would provide a way of broadening the customer base and making the sales process easier."
However, she said that potential buyers would have to be educated and convinced that property auctions were a viable alternative.
Emirates Auction did not comment ahead of the sale. The Dubai Land Department could not be reached for comment.