Loan ranger

Of the banks surveyed by Independent Finance, the minimum monthly salary required ranged from $2,178 to $5,444. UAE salaried nationals qualified at the lower end of the salary scales.

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.

With credit at a minimum and financing tight how are high-level speculators coping in the current market? Amjad Hussain, a partner at Eversheds law firm in Doha, specialises in setting up real estate funds to aid clients buy assets in the Gulf and abroad.

He reports that he is currently helping set up a Sharia-compliant fund for a Qatar bank and is advising Qatari investors who are investing in the Shard of Glass, which when complete will be the tallest building in London.

"The cost of financing has gone up as banks are repricing risk and are looking at the risk associated with local and expatriate investors," says Hussain.

He reports that clients are avoiding refinancing in the current market as the price of credit has increased and he has found that financiers are now keen to exit riskier projects.

"Banks are looking to see if they can use any provision to try and exit from funding a project as market conditions change. They may call in a facility or withdraw from honouring any further finance," observes Hussain.

In February, in a bid to boost liquidity, Abu Dhabi moved to inject $4.35bn into the emirate's biggest banks. These including the National Bank of Abu Dhabi, Abu Dhabi Commercial Bank, First Gulf Bank, Union National Bank and Abu Dhabi Islamic Bank.

Alexander von Pock, manager of Financial Services at consultants AT Kearney Middle East, believes that such drastic measures will become more common across the UAE.

"One measure that has been taken has been the merger of Tamweel and Amlak and putting it under the tutelage of the government. If you look outside the Middle East a lot of banks are being nationalised to some extent to insure they perform their basic function, which is to extend financing."

Bank bailouts have been commonplace across the globe and Hussain believes that a bailout for the banks is in some ways directly a bailout for the real estate sector.

"In Qatar the Qatar Investment Authority (QIA) sovereign wealth fund is taking stakes in a number of banks so the idea is to prop up the banks and therefore inject money into the banking system, which feeds itself through to the customers and investors. If the government is investing in banks they are investing in mortgages, which equates to a bailout in my view."

UAE developers generally finance their projects through staged payments from investors. With the credit market declining, this model of financing is now under threat and developers are looking to other options.

In order to stimulate credit and sales, some UAE developers have set direct arrangements with mortgage lenders. Abu Dhabi mega developer Sorouh Real Estate PJSC has signed an agreement with Aseel Finance, ADCB and RAKBANK, offers investors the potential of acquiring mortgages of up to 90 percent.

"This link-up is to allow Sorouh to create a deeper and wider coverage of the mortgage options it can give its potential purchasers," says Gurjit Singh, chief property development officer at Sorouh Real Estate PJSC. Singh believes that such arrangements will become commonplace in the future.

In December, Mizin - the Dubai-based developer - also struck a partnership with Rakbank to offer its existing customers mortgage facilities. As part of the deal, Rakbank would cover the cost of the outstanding installments and investors would repay the amounts back over 25 years.

Investors can settle the outstanding loan amount by up to 20 percent each year; however a one percent fee is due on the balance if they sell the property within the lifetime of the loan.

Direct links between financial institutions and real estate developers have long been commonplace in the UAE. The major shareholders in mortgage lenders Amlak and Tamweel are Emaar Properties and Dubai World, respectively.

In November last year, Abu Dhabi Finance - a new mortgage provider for the UAE market - was set up and the main shareholders are Abu Dhabi Commercial Bank, Mubadala Development Company, the Tourism Development and Investment Company and developers Sorouh Real Estate PJSC and Aldar.

Having a direct link between mortgage lenders and real estate lenders would appear to be a conflict of interest but with speculators being flushed out of the market it will make it easier for end-users to obtain finance.

It remains to be seen whether these relationships will prove successful for lenders in the long term.

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