Bursting the bubble?

Sunday, 13 January 2013 9:47 AM

A UAE Central Bank circular issued on 30 December capped mortgages for expatriates to 50 percent of the value of the property.

“Because there is a flight to quality in terms of location and structure, I think in some locations — particularly those locations further from the centre of Dubai — they will either be stable or show a slight decline until we have a meaningful increase in terms of people in the market place. If we start to see growth in the overall population here all of the sectors will be affected positively but until we see that growth in population we’ll still see some declines in the less-quality property,” says Maclean of CBRE.

The mortgage cap follows other directives aimed at tightening the UAE’s financial system in the wake of the downturn. The central bank in April issued new caps on lender’s exposure to state-backed institutions at 100 percent of their capital and 25 percent to any one state-related entity. The move was postponed pending a review.

UAE bankers are hoping a similar review is conducted before the mortgage cap is standardised. With no prior warning that the regulations were going to be imposed, bankers are concerned about the impact the mortgage cap will have on lending and liquidity.

Last week, local lenders asked the central bank to delay the introduction by 30 days and are said to be planning to speak to it about raising the new loan-to-value lending limits. “It was agreed that the Emirates Banks Association will write to the central bank requesting a 30-day delay for implementation of the circular,” one source with knowledge of the matter told Reuters.

While sources say bankers are generally comfortable with a mortgage cap, most reportedly favour a loan-to-value cap of around 70-85 percent with higher limits for UAE nationals and lower for foreigners.

“Everybody is shocked [at the announcement]. Most banks already ask for a 30 percent loan-to-value but if you tell foreigners they cannot buy a house unless they have a 50 percent down payment they won’t want to buy a house,” one senior banker tells Arabian Business on condition of anonymity.

“They could have restricted the foreigners who are non-residents with a 50 percent cap but not those with a residency. Local banks are likely to be the most affected as they rely on retailing banking and mortgages. Retail is their bread and butter,” he adds.

Others argue that the UAE authorities should look at implementing a mortgage law rather than a cap, which only serves to reduce the liquidity in the property sector, “It will restrict the risks taken in the banking sector but it means the property and real estate sector still lacks the finance,” says Nasser Saidi, managing director of Nasser Saidi & Associates.

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Posted by: HD_dxb Sunday, 13 January 2013 2:10 PM[UAE] - uae

what about the pressure that this will bring on to the rental market?! Rental prices are going to shoot through the roof. Giving owners more return on investment while putting severe pressure on a majority of the population. Not a good idea at all.

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Posted by: Mike DeLonghi Sunday, 13 January 2013 2:10 PM[UAE] - Saudi Arabia

The Akerman story is a reminder that the mortgage cap is a political ploy. You have a genuine buyer, the non speculative type that wants to stay in the UAE for the long haul.
Supposedly the cap is to 'limit speculation' and property flipping. Well, speculators do not need mortgages - and if they did you could just simply limit the number of mortgages per resident to 1 or 2 to cap mortgage infused speculation.
Clearly, the new rule is to cap another thing: High volumes of genuine foreign ownership of UAE real estate and in doing so shift the market back towards renting. And who owns the bulk of leasable land and property? UAE owned firms & nationals. Also, they don't want the UAE banks to become too dependent of foreign-linked mortgages.
The cap is in fact 'Emiratisation' of the property sector. They don't really want expat masses to own UAE property in order to live there permanently - they prefer having a select expat elite seeing Dubai property as a their second or holiday home.

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Posted by: Anil Sunday, 13 January 2013 2:09 PM[UAE] - UAE

If Dubai seriously wants to move out of the down-turn, it needs to bring back the Permanent Residence status with the purchase of property. Make it into law and stick with it. Then even if the banks do not lend anything, all these properties will be picked up in a week.

Posted by: Arabian Sunday, 13 January 2013 2:56 PM[UAE] - kuwait

It never had and never will have permananent residence status.
If you were referring to a 3 year renewable visa , well that is just another detail of the shifting sand

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Posted by: Mad Sunday, 13 January 2013 2:09 PM[UAE] - Dubai

This is the worst decision that could be taken in avoiding a new burst,,,, as the impact is not only on the market but also on the expats' social security and future plans.. destroying future hopes for us, makes uae more of a temporary hub before moving to a long term stable place where you can plan your retirement.
as an alternative, I would suggest to set fixed rates and finance according to an estimation by authorities, which would control the prices (from a bubble) and eliminate fluctuation.

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Posted by: Telcoguy Sunday, 13 January 2013 11:00 AM[UAE] - UAE

Surprisingly good article.
My only point is that the differences between Singapore/Hong Kong and Dubai have been downplayed a little (there is no room to build there but plenty here) but I think it offers a quite balanced and well thought analysis covering all the basic points.
Good to see something that is not a reprint from some corporate communication, hopefully AB will have more of this.
Let see how things move

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