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Q&A – Dubai Land Department’s Public Auctions

Q&A – Dubai Land Department’s Public Auctions

XPRESS

30 November 2011

We understand that the Dubai Land Department (DLD) is holding public auctions for the first time in the UAE.

Q: Can you tell me what does this imply for the Dubai property market and its buyers?

A: The implications of the DLD’s recent announcement that it would hold regular bi-weekly (twice a week) auctions are yet to be fully understood and tested.  For now, very little disclosure exists about how the auctioned properties came to be auctioned off.  It is unclear as to whether these are properties subject to mortgage default and, therefore, repossessed by the lending banks.  It is equally unclear whether it is the lending banks or the developer that have repossessed the property that is being auctioned, which would determine who the beneficiary of the auction proceeds would be.  Or whether these are properties subject to buyers’ inability to fulfill their contractual obligations with the developers and, thus, being repossessed by those developers.  Theoretically, they could also be rare or unique properties, which the owner, be it the government or a private party, wants to solicit the highest price.  Until these details become clear, it is difficult to accurately surmise the implications of such actions.

From a legal standpoint, however, for properties to be offered at an auction, there has to be an order from the court or from a body with an equivalent jurisdiction authorizing such sale.  Based on this reasoning, the properties that are now being auctioned off have already passed through the courts.  This means that the docket of defaulting properties is finally starting to clear through the auction.

If that is the case, then this is a very positive development.  All parties, buyers, banks and developers, need to be able to bring their issues to a close, to tally up their losses and to move on.  Holding a stagnant inventory of properties is a significant liability.  Developers and banks want to receive at least a partial payment.  Buyers and borrowers, in turn, want to be released from the liability of an asset they cannot afford.  The market too is most likely holding back in adjusting itself pending the resolution of disputes involving defaulting properties.

Q: Do you believe that buyers can get some really good bargains on such publicly auctioned properties?

A: Much depends on the property being auctioned off.  The value of the bargain depends on the final bidding price.  The starting auction prices thus far have been reportedly about 20% below the market price.  Presumably, the final bidding price must amount to good value, to make sense of buying at an auction, especially since there is no right to inspect the property before placing a bid.

To put things in the context, during the first auction held on November 28, 2011, all five properties listed were sold.  Three of the properties were sold for between 8% and 30% over the asking price.  One property was sold at starting price.  And one property was sold at almost 80% of the asking price.

Q: Legally, what are the implications for the public auctions in Dubai?

A: Generally, it is still premature to ascertain the legal implications of public auctions.  This is because of lack of disclosure about the nature of the auctioned properties.  Also, it is too early to tell how the administration of the properties at the auction will take place.  Without the benefit of the details, but relying on the governing laws and practice, public auctions mean that the courts have already adjudicated the properties and rendered a final verdict as to their ownership status and resulting disposition.  This should mean that the ownership claim to the property has now been fully and finally settled, presumably after all interested parties had had their say in court.

Q: Do you believe this is also an important step towards the legal process of Dubai properties falling in place and doing good for the real estate market?

A: Provided that all interested parties have had the opportunity to present their case, in court or otherwise, public auctions is a positive step forward.  The process is indicative of the operations of the courts, laws, relevant government agencies.   As more auctions take place, there will be more transparency and clarity on their workings.  This will in turn promote more properties being sold at auctions, thereby moving the market along.