50% recovery rate on mortgage defaults 'excellent'

Thirty-five per cent is a manageable recovery rate when it comes to mortgage defaults and 50 per cent should be considered an excellent recovery rate, according to Chris Green, Managing Director at Independent Finance, a specialist financial services company.

"The other half will probably result in repossessions and auctions and the lenders will recover more of their losses over a period of time," he told Emirates Business.

There is increasing speculation about the kind of losses banks may have to suffer in the country due to bad debts in the property market.

But the situation in the UAE may not be as bad as some expect.

Having said that, experts do not rule out some legal action against defaulters.

"All of our banking clients have been very proactive in working with and closely managing customers, rescheduling or restructuring the lending where appropriate. However, as expected, there are cases where the banks are left with no alternative, in particular when dealing with customers who have absconded," Jody Waugh, Partner at Al Tamimi and Company told this newspaper.

"All lenders will do their best to recover distressed debt," said Waugh.

"It will start off with negotiations with the distressed client and thereafter they would have to resort to hard collections, legal recourse and sometimes even international involvement, but they [the banks] are also people like you and I and the first option is always compromise," added Green.

Going forward, experts believe that they may see a dip in defaults if the property market stabilises.

"I think we will see a continuation of what we have seen in the second quarter of this year – stabilisation. Where possible banks will continue to work with customers and manage the relationships through this difficult time, taking legal action only where it is absolutely necessary," said Waugh.

"Will it stabilise, the answer is a definite yes. When? If you look at the message and the action behind many banks, it is already happening. I believe we will have a stable fourth quarter in comparison to 2008 and we will start working as a normalised market until the next fiscal upswing," he concluded.

Keep up with the latest business news from the region with the Emirates Business 24|7 daily newsletter. To subscribe to the newsletter, please click here.