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The Palm Jumeirah has witnessed its first property repossession, resulting in a bank selling an apartment for just AED745 per square foot – nearly 35 percent below the current market rate.
Arabian Business understands that a three bedroom apartment in Al Shala, on the prestigious development, was “taken back” by the owner’s bank last week after he failed to resolve Dhs1.7 million of outstanding debt.
“He left the country and gave power of attorney to someone else. The bank moved in quickly and asked for Dhs1.7 million, which they got within a few hours,” said a source close to agent involved in selling it.
The property was advertised by Networth Real Estate on the website of UAE daily Gulf News, at an asking price of AED1.7 million for a 2,280 square foot three bedroom apartment. When contacted, the agent said it had “gone immediately for cash".
It is thought to be the first time any bank has taken back a property on the Palm.
Just last week, according to Bloomberg, Barclays, Britain's second largest bank, has won the first foreclosure orders in Dubai, clearing the way for lenders holding about $16bn of Dubai home loans to take action when borrowers don’t pay.
Barclays said in an e-mailed reply to questions from newswire Bloomberg that it won the foreclosure orders, without providing details of the cases.
Similar properties on the Palm are currently being advertised close to AED1140 per square foot, nearly 35 percent higher than the bank’s selling price.
Provisions for bad loans in the UAE surged 68 percent by to 32 billion dirhams ($8.7 billion) as of November, compared with a year earlier, according to Bloomberg.
It said that Islamic lender Tamweel, the emirate’s biggest mortgage bank, has several of its own foreclosure claims pending and estimates about 3 percent of its mortgages are in default.
“Banks will be more aggressive in pursuing legal action if they see the process is efficient,” said Antoine Yacoub, a banking analyst at Moody’s Investors Service.
“They were trying to avoid the courts and restructure most of their loans, but once they see a precedent has been set, they will be encouraged to push more cases through.”