One of the big stories in the global economic downturn has been the immense amount of scrutiny given to Dubai’s burst real-estate bubble, much of it without providing any context. The shrieking, often schadenfreude-filled, coverage of Dubai’s economic woes, lasted through the majority of the winter of 2009. (It got so bad that I saw astrologers evaluating Dubai’s bust). One of the main themes that I noticed in much of the so called analysis was the concern among Western banks and lenders regarding Dubai’s legal system. It was alleged that Dubai’s corporate law was arcane or out touch, and therefore, the main culprits in the real estate bust, would end up evading any accountability.
This has not come to pass. Dubai’s legal system is demonstrating its internal cohesiveness and ability to evolve, and proving that most of that western “concern” was really just ignorance mixed with panic mixed with soft bigotry of lowered expectation. Dubai Informer reports that Dubai recently had its first foreclosure case, and it involves a Western bank.
Barclays recently won Dubai’s 1st foreclosure case in a local courtroom. The decision, based on a 2008 law, paves the way for others to pursue claims. Lenders hold $16 billion of residential mortgages. Tamweel P. J. S. C., Dubai’s largest home loan bank, has a number of foreclosure cases pending. ” Banks will be more aggressive, ” says Antoine Yacoub, a Dubai – based banking analyst at Moody’s Investors Service. ” As soon as they see a precedent has been set, they will be encouraged to push more cases through.”
The article goes on to point out that foreclosure is probably not going to be the preferred way of going further:
Lenders might be selective in applying the new law. Britain’s Standard Chartered Bank, a big mortgage lender in Dubai, says foreclosure is “a legitimate course of action” but not its “preferred approach”. As in the United States, financial institutions are reluctant to dump foreclosed houses on the market for fear of driving down prices, says Saud Masud, a Dubai – based real estate analyst at UBS. New projects, started before the bust, will add up to 30,000 housing units to the market in 2010, according to Deutsche Bank. ” Mass auctions might reprice the real estate market in a meaningful way, ” Masud says. ” It’s a slippery slope.”
The place where Dubai’s real estate boys really went wrong was not necessarily in dreaming big, but in relying on a Wall Street CEO to lead their investment arm, a guy who just happened to have learned his trade at, you guessed it, Lehman Brothers. (A firm that doesn’t exist any more). This CEO leaves his job with his former company, Dubai World, $22 billion in hole, off to “pursue other opportunities.” Dubai World, meanwhile, will avoid going into bankruptcy.