Dubai faces mortgage crisis as buyers run, layoffs rise |
| DUBAI: Banks that financed Dubai’s six-year real estate boom now face the unprecedented challenge of foreclosing on bad mortgages as over-stretched borrowers, who had hoped to cash-in on soaring property prices, default. Buyers, who borrowed above their means to finance speculative investments to quickly resell, or “flip”, at a profit, now face ramped up interest rates, hefty payment instalments and a property market that’s at a standstill. To make matters worse, the global economic downturn has arrived in the emirate forcing some of its largest companies to cut foreign expatriate workers. Nakheel, one of Dubai’s largest employers, has already shed 10% of its workforce to cut costs. “The possibility of mortgage defaults and property foreclosures is a very serious problem for banks here and one that they need to address very quickly,” says Chris Dommett, chief executive of mortgage broker John Charcol Dubai. “Many banks will face a steep learning curve and some won’t be able to cope with it.” Officials at HSBC Holdings, the largest international bank offering mortgages in Dubai, confirmed last week that the lender has been contacted by a growing number of its customers in the emirate struggling to pay their home finance. “Some speculators never intended to pay the second installment on their off-plan sales as they never got the funding in place before signing up and were looking to flip their property,” says Matthew Hooton, head of real estate in the Middle East for law firm Ashurst. Mortgage defaults and foreclosures are a concern since the emirate allowed foreigners to buy property in 2002. |
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