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In January, the value of the Dubai mortgage market was down by 64%, compared to the same time last year. However, the number of actual mortgages only dropped by 4.3%. Shane McGinley reports.
In 2008, Dubai banks lent US$31bn in mortgages to property investors, a year-on-year increase of nearly 100%. In 2009, things have changed and liquidity and the mortgage market are the talk of the property industry.
Official figures from the Dubai Land Department show that in January 2009 the value of mortgages fell by 64% when compared to the same period last year, declining from US$1bn to US$379mn.
At the same time a report by Proleads Global found that 52.8% of construction projects in the UAE, worth US$582bn, have been put on hold. The report also observed that the rate at which projects are progressing has slowed down.
Real estate accounts for 84% of projects in the UAE, therefore the obvious slowdown in the mortgage market is having an immediate impact on the sector's growth.
The effects were felt quickly by the banks and as soon as November last year Lloyds TSB had stopped financing apartments. Later in the year, it reduced the number of staff in its mortgage department by 70%, blaming a decline in demand.
Amlak, the UAE's biggest lender, stopped lending altogether temporarily and Tamweel, its next biggest rival, cut its staff numbers by 57. Tamweel and Amlak are currently in merger talks and a decision is due soon on the outcome.
While the overall value of the mortgage market has slumped, a closer look at the figures show that people are still looking for mortgages and banks are still giving them.
The difference is that speculators looking to borrow millions and billions have disappeared from the market and have been replaced by everyday workers looking to buy a permanent home.
In 2009, this is most evident by the fact that the majority of mortgages granted have been in residentially focused developments such as Al Warqa Third, Emirates Hills Third and Arabian Ranches.
The highest mortgage so far this year, as of February 15th, was granted along Sheikh Zayed Road and was for US$35mn.
The death knoll for Dubai's speculators began in October last year says Ian Albert, regional director of Consultancy Services at Colliers International in Dubai.
Albert says that at the Burj Dubai, where prices are considerably higher than average, properties were becoming too expensive for the average end-user due to the level of speculation taking place.
"We saw banks withdrawing financing at certain levels in October as they were getting nervous at the rate of speculation in that development," says Albert.
In October, Cityscape Dubai saw many landmark projects, such as the 1km tall Nakheel Harbour and Tower, being launched onto the market. While the number of mortgages nearly doubled, jumping from 162 in October 2007 to 318, the monetary value dropped 18% from US$950mn to US$775bn.
By December, the number of mortgages was up again, by 38%, but again the overall value for the month was down by 48%. In February, the trend appears to be going in the same direction as developers, mortgage lenders and agents get used to the new era of the end-user.
Chris Green, director of Independent Finance, confirms their business is down by about 75%.
"There has been a drop, at one stage everyone was looking for a mortgage. Now those who are coming to us are serious buyers, they are typically family people who want to buy a place and live here. The other is the person who has a property and needs to raise some property. If it's not built, often they need to raise capital for the next payment for the developer."
Looking at the top five banks that Independent Finance highlights, it appears that the cost of credit between August 2008 and January 2009 has only risen by 3.58%.
"The most significant thing is that the cost of your mortgage over the period has seen the most significant amount of difference," states Green.
According to Green, if a person applied for a 25-year US$122,512 mortgage in January 2009 it would have been US$9,615 more expensive than the exact same one applied for in August 2008.
"The chances of getting one are much more difficult and the ultimate clients that banks want to see I don't think exist anymore and are few and far between. Every mortgage we work with there is a bit of deviation that needs to be done with the lenders," adds Green.
In January, Emirates NBD, the Middle East's largest bank, raised its minimum monthly salary limit for expatriates by 200% to US$6,806.
A poll by ArabianBusiness.com found that 41.6% of those surveyed believe rising minimum salary levels is dangerous and will contribute to the downturn of the UAE economy. However, somewhat surprisingly, 31.3% describe it as a prudent move.
Of the banks surveyed by Independent Finance, the minimum monthly salary required ranged from US$2,178 to US$5,444. UAE salaried nationals qualified at the lower end of the salary scales.
Colliers International report that 74% of properties mortgaged in Dubai are apartments, 10% are villas and 16% are townhouses. Green says that off-plan properties are virtually impossible to get finance for.
"If it's a completed property then they are very successful and the most successful are people who are buying a place to live in - those ones we walk through with all the time. If it is a non-resident there are few banks that will offer mortgages."
The type of industry the applicant works in is another key factor says Green and he reports that real estate and real estate related sectors, such as interior design and decorating, have been hardest hit.
