Qatar to rein in home loans

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LOAN RESTRICTIONS: Qatar is looking at tightening home financing in its battle to control spiralling inflation. (Getty Images)

Qatar is considering tighter home finance rules, including reducing how much banks can lend toward mortgages, as the dollar-pegged state slashes interest rates and battles spiralling inflation, a newspaper reported on Tuesday.

The central bank is proposing increasing a home buyer's minimum mortgage down payment to 30% from 10%, and cutting the maximum loan term to 20 years from 30 years, the Gulf Times reported, citing a note sent to banks.

Under the proposals, monthly mortgage instalments could not exceed 50% of the buyer's salary, the newspaper said. Lenders have until Wednesday to give feedback to the central bank, it said.

Inflation in Qatar, the world's largest exporter of liquefied natural gas, hit 13.7% in the fourth quarter, just off a record. Rents surged almost 28%.

RELATED: Qatar inflation hovers below 14%

"This region needs monetary policy tightening because inflation to a huge extent is the result of huge liquidity," said Marios Maratheftis, regional head of research at Standard Chartered Bank.

"Since the dollar peg restricts monetary policy tightening, they have to look at alternatives," he said.

Interest rates across the Gulf have been declining as most of the states tracked seven US Federal Reserve interest rate cuts since September totalling 325 basis points.

Qatar has slashed its deposit facility rate to 2% as a result of the Fed cuts.

This has encouraged people to borrow money from banks to buy into property and stocks, especially since real interest rates - the official rates offered by banks on deposits minus inflation - are negative.

Trying to curb lending growth to prevent it from stoking inflation further, Qatar has raised the reserve requirement for banks three times since December to force lenders to keep more money in their vaults.

The oil and gas producer also agreed this year to freeze all rents signed since the start of 2005 for the next two years in a bid to curb inflation, which could hit 13.8% this year, a poll by newswire Reuters showed this week.

RELATED: Gulf inflation to surge past 9% this year

Other states in the world's biggest oil-exporting region are also trying to limit banks' exposure to the real estate market.

Bahrain's central bank proposed in December to cap the value of mortgages banks can offer at 25% of total loans. (Reuters)

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READERS' COMMENTS

Real Estate Bubble
Posted by Shahab Kalam, Miami, USA on Monday 12 May 2008 at 07:32 UAE time

It is important to keep balance - don’t follow the property race like in USA. If growth is more than inflation it is guaranteed to be a bubble. We need to slow growth rather than a bubble.

When bubbles burst lending institutes will hurt the most.

We need to have a populated town, not a ghost town of speculators.

New lending regulation
Posted by Mohammed Siddique, Doha, Qatar on Tuesday 6 May 2008 at 16:53 UAE time


New reguation which is under review by the QCB, will have serious negative impact on the property market of Qatar. The property market which has only few prominent projects such The Pearl Qatar and Lusail City will be hampered by such a action by the QCB. Property market which has just started to boom will experience a signficant slow down. This is not a clever step to control inflation by adversely affecting growth of the country. In my personal opinion such a regulation will be unanimously rejected by the lending institutions and the buyers.

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