Preetha Rayan and Aldrick D'Souza have fond memories of most of their time in the UAE. But that changed when they took out a home loan two years ago. "For the first six years, God was good to us," Mr D'Souza said. By the summer of 2008, their daily commute between Sharjah and Jebel Ali, which took up to five hours round-trip, had worn them down. So they decided to buy a home in Dubai. "The flat looked absolutely beautiful," said Mr D'Souza, recalling the floor plans of the one-bedroom flat in Discovery Gardens.
But the pair will never live in what they hoped would be their dream home. They fled the UAE when they realised they could not service their loan and might be imprisoned. Today they share a flat with relatives in Bangalore, India, and are being pursued by Tamweel for money they owe on their defaulted loan. The collapse of property prices in Dubai has forced many investors into negative equity, placing many in financial dire straits. A growing number, like Mrs Rayan and Mr D'Souza, have opted to flee the country altogether for fear of imprisonment after signing security cheques they can no longer honour - a criminal offence in the UAE.
Now finance companies are pursuing many of them abroad and hiring debt collectors to recoup some of the billions of dollars in bad loans accumulated since property prices began falling at the end of 2008. "Tamweel asked its clients to write cheques knowing that these people don't have the financial means," says Ludmila Yamalova, a partner at Al Sayyah Advocates and Legal Consultants. But Mr D'Souza admitted he did not properly read the fine print in the agreement. "I would take the blame for not taking it step by step. In hindsight, I should have taken more time to review the contract."
In November 2008, the financial crisis was starting to be felt in Dubai and the handover of the couple's flat was nearing. That would have meant a Dh96,000 (US$26,136) payment, and future maintenance and service fees were also greater than they had budgeted for. "Ultimately we would have to pay around Dh15,000 monthly, instead of the Dh11,000 we originally calculated," Mr D'Souza said. The decline in house prices - by as much as half from their 2008 peak - has forced many investors into negative equity and clogged the legal system. Local banks and other lenders have sold home loans estimated to be worth Dh150 billion, of which Tamweel and Amlak account for about 15 per cent. But so far only a few foreclosures have gone to court, as there was no legal precedent.
"What we lack most is a mechanism to wind down mortgages," said Marios Maratheftis, a chief economist at Standard Chartered. Saud Masud, an analyst at UBS, estimated that non-performing loans could rise to 15 per cent of all loans next year from their current 2.9 per cent. A recovery will elude the property sector until banks adjust their repayment expectations, he said. "It is time that the industry wakes up. Mortgages cannot act as a catalyst if interest rates are among the highest in the world."
Mr Masud expects more homeowners to default rather than try to continue paying after the home value fell below what they borrowed. Some banks are keen to persuade their customers to hang on to their properties by renegotiating terms, offering payment delays and stretching the tenure of the loan. "As a responsible lender, we are willing to listen and to find mutually acceptable solutions to customers willing to meet their financial obligations as long as their situation is well substantiated and within reasonable boundaries," said Zeeshan Saleem, the regional head of Barclays consumer banking.
Some mortgage lenders have stopped issuing new loans altogether as the financial crisis deepened, or they have lowered their loan-to-value ratios to such an extent that few customers are able to find enough cash for a deposit. The high fees associated with switching mortgage companies have made it difficult for homeowners struggling with higher repayments to secure a better deal. In Bangalore, Mrs Rayan and Mr D'Souza cling to the hope of returning to their old life in the Emirates.
"We feel more at home in Dubai," said Mr D'Souza. "We had a very active life there, and made nice friends. If we could freely walk back into it, we would." @Email:firstname.lastname@example.org