DUBAI - Banks in the UAE, heavily exposed to the region's ailing real estate market, can use a local foreclosure law to reclaim assets, but a sharp increase in reposessions is unlikely for now, lenders and analysts said.

Barclays (BARC.L) this week became the first bank in Dubai to win a foreclosure order, yet other mortgage lenders are in no rush to follow suit as they seek to avoid adding pressure to an already bruised real estate market.

A court ruling allowed Barclays to foreclose on several properties, though a spokeswoman for the bank declined to give more details on the case.

Dubai's property sector has suffered a sharp correction under the global financial crisis, with prices down more than 50 percent from the height of the boom, according to analysts' estimates. Dubai's two biggest mortgage lenders Amlak AMLK.DU and Tamweel TAML.DU, whose shares were suspended in 2008, have suffered in the crunch and plan to merge.

A foreclosure allows a lender to seize the property of owners who have been unable to keep up with mortgage repayments. The economic slowdown in the region, combined with the bursting of Dubai's property bubble in late 2008, significantly increased the risk of payment defaults.

Yet some banks say the foreclosure option will only be used as a last resort, because the diminished value of property assets means they will incur losses.


The bank is not foreclosing any properties right now, nor reclaiming, said Amna Saleem, mortgage officer at Standard Chartered (STAN.L), an active player in the mortgage market here which continues to lend despite the downturn.

Properties are undervalued right now, so banks will be making a huge loss on them, she said.

Instead, the bank is introducing a debt relief programme, to re-evaluate the financials of people who have not made repayments in two months or so. The bank is asking them to just make the interest payments.

The retail lending head at a major international bank in the region said lenders will also await further clarity on the foreclosure legislation before taking matters to court.

It is too early to talk about how the foreclosure law will unfold, it depends on what the process is and how much time it takes, said the executive who declined to be identified.

It also depends on the underlying value of the asset; property prices in the region have fallen considerably. Banks may want to pursue the customers rather than claim the property.

Analysts were also cautious about interpreting Barclays' case as an indication banks will initiate foreclosure procedures on a large scale.

I don't necessarily think this (Barclay's foreclosure order) will set a precedent for a foreclosure tsunami, said Ali Khan, managing director and head of brokerage at Arqaam Capital.

We've been told banks are trying to work with borrowers and we haven't seen any message shift, Khan said. Their priority is to stabilize the housing market rather than throw in a sledgehammer and create possible ripple effects, he said.

Other experts pointed to the foreclosure ruling as an important step in the development of Dubai's real estate market, known for its extravagant projects like the world's tallest tower and man-made, palm-shaped islands.

Typically we would not expect this process to be utilised for every type of dispute, rather those cases where no other logical route is available for the banks to follow, said Matthew Green, head of research and consultancy at CB Richard Ellis Middle East.

It's another important process now in place, helping the real estate market edge towards maturity. (Editing by Thomas Atkins and David Holmes)