Investors cry foul over 'unfair' mortgage interest

Property investors in projects that are being delayed are crying foul over mortgage companies charging them interest for the period of the delay as well.

Islamic mortgage lenders, as well as conventional lenders are being accused of charging interest on the amount paid so far, for the entire period of the delay.

While Islamic mortgage lenders charge what is termed as a profit, conventional lenders charge regular interest.

Several investors, speaking to this website on condition of anonymity, said banks have informed them that this interest will be claimed, in a lump-sum, before handover of the flat.

Experts told this website that the clause that covers this “pre-construction profit” may well be mentioned in some contracts, but investors may have over-looked it, not expecting projects to get severely delayed.

Several banks dealing in both types of mortgages refused to comment on the issue.

RM, employed with an international management consultancy in the UAE, said the project where he bought a unit has been delayed by over 18 months and the Islamic bank that financed his property has extended the "pre-construction profit" for the delayed period as well.

"We were promised handover in June 2009. As per our contract, the developer had the right to extend the handover date by six more months. However, now we are being told the delivery will be in early 2011. So we need to pay for 2010 and we are not getting our unit," RM said, adding, “Moreover, the amount has to be paid in a single cheque.”

Another investor, DM, said he too has to shell out a large sum since his bank has already paid 75 per cent of the loaned amount to the developer.

"They [bank] have a blank cheque that I had given them at the time of taking the loan. I fear they will put a higher amount and deposit it. Although, they haven't conveyed anything yet, they have told us of the extra charge that we need to pay at the time of handover."

DM, who is eager to take possession of his unit, said, "What we want from the banks is that they do not charge us for the extended period of delay and overburden us."

According to the prospectus supplement filed by the government of Dubai on the London Stock Exchange, 46 projects have been completed, while another 307 are expected to be completed in due course.

The number of registered projects which have either been cancelled by the Real Estate Regulatory Agency, or are in process of being cancelled, or on which work has otherwise stopped, is 495.

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