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Buying distressed properties in UAE: What you need to know

Assets often become distressed because of the operational and financial difficulties faced by the owner or issuer of the assets, which may result in insolvency or bankruptcy. Such situations create opportunities for distressed sales, offering great deals for buyers.

These assets are valued below their actual price and could be in default or close to default due to reasons particular to the owner or issuer rather than market conditions. However, sometimes external factors and market conditions can also affect the performance or sudden sale of an asset, like the need for capital.

Reasons to sell

According to analysts, there are other motivations owners are willing to sell below the market price, such as currency fluctuations. For instance, the currency in the seller’s home country may have depreciated, and thus wants to remit money back home and profit from the exchange rate, despite having to sell the property at a discount. Others may sell their unit before handover, as they foresee many units entering the market leading to property prices further declining.

Bankruptcy Law

The Federal Law by Decree No (9) of 2016 on Bankruptcy (the new bankruptcy law) sets out a framework for how to deal with the assets of debtors who are undergoing financial difficulties. The new law discusses what is referred to as a “protective composition” prior to delving into actual bankruptcy proceedings, explain Umera Ali, global head of Islamic finance and head of banking and finance Middle East, and Abdullah Masud, associate at DWF. Protective composition under the new bankruptcy law is a composition procedure that aims to assist the debtor to reach a settlement with creditors by means of a protective composition plan, under the supervision of the bankruptcy court and a composition trustee. Preventive composition is debtor led; the debtor voluntarily applies to the court for the procedure so a settlement with creditors may be reached without going through formal bankruptcy procedures. The new law essentially gives the debtor a chance to continue its business and avoid liquidation.

Bankruptcy Law

The Federal Law by Decree No (9) of 2016 on Bankruptcy (the new bankruptcy law) sets out a framework for how to deal with the assets of debtors who are undergoing financial difficulties. The new law discusses what is referred to as a “protective composition” prior to delving into actual bankruptcy proceedings, explain Umera Ali, global head of Islamic finance and head of banking and finance Middle East, and Abdullah Masud, associate at DWF. Protective composition under the new bankruptcy law is a composition procedure that aims to assist the debtor to reach a settlement with creditors by means of a protective composition plan, under the supervision of the bankruptcy court and a composition trustee. Preventive composition is debtor led; the debtor voluntarily applies to the court for the procedure so a settlement with creditors may be reached without going through formal bankruptcy procedures. The new law essentially gives the debtor a chance to continue its business and avoid liquidation.

There are many distressed sales available in the market in different price brackets and segments such as ready, soon to be ready, under construction and just launched.

Do your due diligence

It is important to look for the following points before finalising a distressed deal.

For ready property

  • Ask the owner for the maintenance file (generally most owners maintain one).
  • How often was the A/C servicing done?
  • When was the last A/C duct cleaning done?
  • When were water heaters changed?
  • Have there been any electrical issues?
  • Look for any cement patch or cracks on the wall.
  • Look for paint cracks on the wall close to the floor (a visible sign of water seepage)
  • Look at the shine on kitchen flooring (as that shows usage of property)
  • Look for depression in the garage floor (its an obvious sign of water leakage)

For off-plan property

  • Check the credibility of the developer.
  • Check construction status (Dubai Land Department has an app).
  • Keep a buffer for a possible delay in delivery (as per law a developer can delay handover by a minimum one year).
  • How many similar projects are coming near the 5km radius?
  • Also, remember that distressed deals are generally done in cash with a very short turnaround time of 7 to 14 days total.

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