With house prices in Dubai rising by nineteen percent last year, many have been fearing the return of a property bubble. The central bank’s move to put a cap on mortgages aims to change all that, but is the announcement too much, too soon?
Speaking to reporters last week, Nakheel’s chairman, Ali Rashid Lootah, said: “the new mortgage cap won’t affect those buying high-priced luxury properties as they will be financially capable of placing a higher down payment, but it will impact the middle class people... it could be restrictive.”
“We expect that this regulation will help control speculation in the UAE property market, however, the severity of it could also hurt the genuine investors and end users as well,” says John Chang, head of consumer banking at Dubai’s Noor Islamic Bank.
“The property market will be pulled down significantly as a result of this regulation. In the short to medium term, prices will come down as the market shifts from a sellers’ market to a buyers’ market,” he adds.
Others fear that a mortgage cap will end up hurting the end users rather than speculative buyers. “Most of the investors who are driving up prices are cash buyers. Investors don’t use mortgages, those are taken by the genuine users,” says Kabir Mulchandani, CEO of Dubai-based real estate investment firm Skai Holdings.
He adds: “If this regulation continues, rents will go up because end users cannot come up with 50 percent. It will lead to more investors owning property than end users.”
That said, there is a feeling amongst some experts that the lower priced end of the market will benefit — a view the stock market appears to back. Take Emaar shares, which are now trading at over AED4, representing a remarkable 70 percent rise in the last twelve months. Back in November 2011, the company announced a strategic move into low-cost housing across the region — beginning with Dubai. At the time, Emaar chairman Mohamed Alabbar told Arabian Business: “We’re talking to a few emirates. I’m going to focus on Dubai to start with. We are talking about [property] of maybe AED550,000 for someone with an income level of around AED12,000 a month.”
In theory, it means those who hope to buy a AED2m home may be forced into looking at far cheaper options, boosting companies like Emaar.
Though other experts argue that just because people can only afford a AED2m home rather than a AED4m home doesn’t mean they will now buy cheaper homes.
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