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29 March 2024

Auction route may not fetch developers right price

Foreclosure is seen as a complicated concept in the country. (FILE)

Published
By Parag Deulgaonkar

Auction may not be the preferred option for developers since it might not fetch them the desired value, legal experts said.

"In my opinion, auction will not help developers as the property may not fetch the desired value when sold. Moreover, the market condition is not suitable to sell properties at present, as there is a liquidity crunch in the market," KK Sarachandra Bose, Partner and Corporate, Commercial and Contract Lawyer, Dar Al Adalah Advocates & Legal Consultants, told Emirates 24|7.

Mohammed Kawasmi, Senior Associate, Property Department, Al Tamimi & Company, too feels the developer is not likely to use the auction route.

"Law No13 as amended made it easier for developers to terminate the sales and purchase agreements and allows them to sell it in auction if the project is completed for more than 80 per cent. The developers prefer not to go for the auction option because in this case it is not expected to get the price expected by the developer due to market conditions," he added.

According to Brent Baldwin, Associate, Hadef & Partners, if foreclosure happens in relation to off-plan property, then this may help developers as the bank may step in and take over the payment obligations, or sell the unit to a new purchaser who will pay.

Foreclosure generally applies in a mortgage situation where the purchaser is not paying the bank and the bank then decides to take possession of the property. Once a purchaser has taken possession, the developer generally steps out of the loop as the purchaser has then fully paid the purchase price.

Baldwin said there may be instances where the developer has agreed to allow a purchaser a long-term payment plan, but in those cases the purchaser's occupation of the property should be structured as a lease arrangement to make it easier for the developer to remove the purchaser from the property if they are not paying.

Ludmila Yamalova, Partner, Al Sayyah Advocates, believes that foreclosure is a complicated concept, especially due to the UAE's peculiar real estate market.

"Should the bank choose to foreclose the property due to borrower's default, it has to obtain a court approving foreclosure, which usually entails selling the property on a public auction. It is not clear yet as to how effective and speedy this process is, for example, in Dubai Courts though a few cases of foreclosure have already been registered," she added.