It is prohibited by intellectual\nproperty law or in any way illegal use of this article, with heavy civil and\ncriminal penalties for the offender.<\/em><\/strong><\/p>\n\n\n\n To restore bankruptcy, state and private construction companies are forced to advance in agreements with their lenders-the credit institutions in the UAE for massive restructuring of their loans to their survival hoping that with this way they will avoid bankruptcy.<\/p>\n\n\n\n The UAE government to reverse the burdened climate announced some\ninitiatives aimed at stimulating the domestic sector and upgrading the real\nestate market.<\/p>\n\n\n\n The large number of available properties has created an exaggeration on the\nsupply side when there is an economic slowdown and investment uncertainty at\nglobal level. Investments made in properties in Dubai in previous years had as\ntheir main objective the future increase in prices, hopefully investors to reap\nsome future time goodwill from their investment. <\/p>\n\n\n\n But the market and markets in general do not work in this way (e.g.\nconstant price rises). The fact of the geopolitical tensions that exist in the\nPersian Gulf region which are likely to intensify in the future makes potential\ninvestors reluctant, while those who are property owners in the region are\ntrying to find a way to sell at a much lower price with the aim of being rid of\nany investments.<\/p>\n\n\n\n Besides all these construction companies due to their high degree of\nlending and in order to survive avoiding bankruptcy, they sell in many cases\nunsold property at below cost prices to initially limit the damage to their\ninvestment portfolios. In addition, real estate companies seeing the constant\ndecline in demand are further pushing down the property prices because they try\nto sell at much lower prices.<\/p>\n\n\n\n This combined wave of sellers trying to get rid of the properties in their possession will continue to fuel the fall in prices in the real estate market. Any potential\ninvestors-buyers who want to enter Dubai’s property market do not have time\npressure and will first expect to lower prices even more than 50% compared to\nthe 2014 prices before entering the market as buyers.<\/p>\n\n\n\n Blow to the banks of the UAE<\/strong><\/strong><\/p>\n\n\n\n The non-possibility of disengagement of construction companies from their\nproperties that cannot be sold makes them unable to serve their loan\nliabilities (red loans-are loans that are not served for more than three\nmonths) constantly burdening the UAE banks which still have open wounds from the\n2010 crisis that appeared in the real estate market.<\/p>\n\n\n\n Over time the volume of non-performing mortgage and business loans will\nincrease by creating a blow to the banks’ balance sheets. Based on the\nannouncements of Fitch Ratings (24\/09\/2019) the red loans (overdue loans) to\nthe UAE banks reach a level of $23 billion, with many of them belongs to\nstate-owned construction companies. The loans of construction companies and\nreal estate companies constitute 20% of all loans to UAE banks. On the other\nhand, the Central Bank of the UAE announced that red loans make up 5% of all\nloans.<\/p>\n\n\n\n The options for <\/strong>C<\/strong>onstruction companies and Banks<\/strong><\/strong><\/p>\n\n\n\n For construction companies and real estate companies the options are specific:<\/p>\n\n\n\n 1.<\/strong> They can keep properties in their portfolio without encountering loan problems in order to sell them in the future at better prices. However, as time passes, and a property is not sold so the investor will suspect that the property is not sold due to a problem that it may have.<\/p>\n\n\n\n 2.<\/strong> They can get involved in long-term leasing to create cash-flows in their revenue portfolios, but without that means they will achieve the price they want. However, if in the real estate market is hard to sell then it is hard to rent or make long-term leasing.<\/p>\n\n\n\n 3.<\/strong> Since they cannot serve their loans, they must sell at any price to stop being involved with their specific investments.<\/p>\n\n\n\n For banks and credit institutions in general:<\/p>\n\n\n\n The damage to banks’ balance sheets caused by non-performing\nloans that will swell over time should be eliminated:<\/p>\n\n\n\n \u03b1)<\/strong> either by “mowing” elements in the liabilities side of banks. <\/p>\n\n\n\n \u03b2)<\/strong> or by state-by-capitalisation. The per-capitalisation would cause a budget deficit in the UAE government’s annual budget. The fact that the UAE have a large reserve in foreign exchange reserves with their continuous per-capitalizations of their banks will cause instability in their foreign exchange reserves. <\/p>\n\n\n\n The final costs incurred with any application of the first two options (a) and (b) will be borne and will increase the budget deficit of the government of the UAE. It will essentially burden the taxpayer citizen.<\/p>\n\n\n\n The correct resolution of the problem<\/strong><\/p>\n\n\n\n 1.<\/strong> In the first place, a thorough check (audit) should be made on the balance sheets of all banks and of borrowing schemes operating in the territory of the UAE. The audited banks with a high percentage of red loans should proceed to their per-capitalisation in which their shareholders will participate. If the principal shareholder in them is State, the funds will come from it.<\/p>\n\n\n\n Next, a created credit scheme will then be used to be funded by the banks\nthemselves. After, the most-capitalised (and problematic by audit) banks will\ntransfer to this selected for redemption problematic credit scheme all the\ndamage they present in their balance sheets, e.g. overdue loans, overdue mortgages,\noverdue construction business loans, etc. which they have in their loan portfolios.\n<\/p>\n\n\n\n Then a conversion will have to be made-a separation of\nthis created credit scheme, in a ‘good’ and ‘bad’ bank. The good assets and\nliabilities of this “good” bank that will emerge will be shared among\nthe other per-capitalised, due to overdue loans, banks. On the other hand, all losses and all overdue loans of the\nentire UAE banking system will be transferred to this “bad” bank. <\/p>\n\n\n\n Then, in the “bad” bank should be\nrestructured and re-valuation of all losses and overdue loans that will now have\nin its portfolio at current prices so that where there are overdue loans to be\nsecuritized with aim to become more attractive to interested prospective\ninvestors-funds.<\/p>\n\n\n\n With this gigantic securitization of problematic loans\nthese loans will be changed hands and redeemed by investors at low prices that\nwill allow them to delete a large part of overdue and problematic loans with a\nprofit and discharging him from the debts of the individual or the debtor.<\/p>\n\n\n\n This type of flexibility (deletion of a large part of\nthe debt) is not available to banks that have granted any problematic service\nloans to businesses and individuals because they cannot waive the collateral\nthat accompanies a loan, e.g. an entrepreneur’s personal guarantees, nor accept\nloan deletions without the commitment of other assets of the debtor.<\/p>\n\n\n\n The proceeds from the sale of these overdue loans and\nlosses of the “bad bank” will redirected fully and in total to the\nstate as long as he participated with his funds in any of the banks in\ndifficulty, so that these revenues mitigate the cost of burdening it from the\nper-capitalizations.<\/p>\n\n\n\n Thereafter and within a six-year horizon from the date\nof the per-capitalization of these problematic banks, the UAE government should\nproceed to the sale of these per-capitalised and now established banks in much\nbetter prices in order for the State to be able to collect a large portion of\nall of its funds that it used for the per-capitalization that borne by it.<\/p>\n\n\n\n In this way the UAE banking system will transfer the burdens\nof the past and will sanitized, proceeding to “cannibalism”\nessentially of the new created for this purpose bank to survive and to fully\nsanitized its existence.<\/p>\n\n\n\n By implementing this strategy does not mean that new\noverdue loans will not be created to these banks\nfrom current bank loans, if the fall of the prices in\nthe real estate market continues due to geopolitical tensions and global\neconomic slowdown etc. <\/p>\n\n\n\n The disadvantage with this method is that social\nunrest can be created because with the securitization and sale of losses and\noverdue loans of the “bad” bank will begin to take part auctions and\nproperty foreclosures so that funds investors get their\nmoney back.<\/p>\n\n\n\n In this case, the social protection net of the state\nof the UAE should operate in not leaving any entrepreneur or individual without\ndecent shelter and food while giving the opportunity to the citizen to start\nhis life again from the beginning.<\/p>\n\n\n\n 2.<\/strong> As an alternative method the UAE government could\napply to banks a strategy of an Asset Protection Scheme, which will limit red\nloans to the banks’ portfolio by $15 billion and will be based on a variation\nof the corresponding Asset Protection Scheme implemented in Italy.<\/p>\n","protected":false},"excerpt":{"rendered":" The shock caused on the demand side of the real estate market in Dubai (UAE) has caused a price drop in the real estate…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[859,5],"tags":[1104,1106,1102,1105,1103,1101],"class_list":["post-1278","post","type-post","status-publish","format-standard","hentry","category-economics","category-economic","tag-baniking-sector","tag-construction-sector","tag-dubai","tag-ovedue-loans","tag-real-estate-market","tag-uae"],"_links":{"self":[{"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/posts\/1278","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1278"}],"version-history":[{"count":3,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/posts\/1278\/revisions"}],"predecessor-version":[{"id":1287,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/posts\/1278\/revisions\/1287"}],"wp:attachment":[{"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1278"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1278"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1278"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}![\"\"](\"https:\/\/www.liberalglobe.com\/wp-content\/uploads\/2019\/10\/320px-Dubai_Marina_The_Beach.jpg\")
Photo by Kallema, https:\/\/creativecommons.org\/publicdomain\/zero\/1.0\/deed.en<\/figcaption><\/figure><\/div>\n\n\n\n![\"\"](\"https:\/\/www.liberalglobe.com\/wp-content\/uploads\/2019\/10\/LocationUnitedArabEmirates.png\")
Photo by Vardion, https:\/\/en.wikipedia.org\/wiki\/Public_domain<\/figcaption><\/figure><\/div>\n\n\n\n