Mortgage cap could boost Dubai rents

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The UAE central bank’s decision to cap mortgage lending could boost the cost of renting in the Gulf state as end users are pushed out of the market in favour of cash buyers, property experts said.

The central bank last week capped mortgages for expatriates to 50 percent of the value of the property for the first home and to 40 percent for the second. The amount UAE nationals can borrow was also restricted to 70 percent and 60 percent.

But opinion is split on how the move will affect property prices in Dubai, with some analysts predicting it will push down prices and other suggesting it will have very little effect on the cost of real estate in the emirate. 

“Most of the investors who are driving up prices are cash buyers. Investors don’t use mortgages, those are taken by the genuine users,” said Kabir Mulchandani, CEO of Dubai-based real estate investment firm Skai Holdings.

“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,” he said. Luxury homes in developments such as Emaar’s Emirates Hills are likely to be unaffected because they typically attract cash-buyers, he added.

The introduction of a cap follows a partial recovery of house prices in Dubai and new plans for several mega projects in the emirate.

Dubai was one of worst hit real estate markets during the 2008 downturn but the emirate’s safe haven status amid regional political turmoil helped push up average prices by nineteen percent last year, according to data from property consultants Jones Lang LaSalle (JLL).

UAE banks on Sunday said they plan to ask the central bank to delay the regulations. “It was agreed that the Emirates Banks Association will write to the central bank requesting a 30-day delay for implementation of the circular,” a one source with knowledge of the matter told Reuters.

The industry body is also likely to ask authorities to raise the mortgage cap for foreigners to 60 percent and reduce it to 80 percent for UAE nationals, the source added.

Property prices in Dubai are likely to soften in the wake of the new regulations but are unlikely to affect the rental market, said Craig Plumb, head of research at JLL’s MENA operations. “This year would have been less than 2012 but as a result of this new policy that’s going to certainly reinforce our view that the growth will be less.

“I don’t think we are expecting it to impact on the rental price. What is likely to happen is that developers who aren’t able to sell the properties will rent them out themselves so the pool of properties will be about the same,” he added.

Property prices in Dubai are unlikely to be affected given that the majority of property purchases are made in cash, said Nicholas Maclean, Middle East managing director of global real estate consultants CBRE. 

“The mortgage buying section of the buying community is relatively small – we think it’s between 20-30 percent – so the majority of the market is unaffected. I don’t see this having a major impact on the market place but do think it’s going to have a stabilising impact on the market.”

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Posted by: Steady

Off course rents will go up! less finance will reduce buying demand resulting in reduced delivery of fresh housing stock. Smaller floating stock of good quality in established communities will be in demand from investors with cash getting a healthy ROI. And to those who think that developers will rent instead of selling guess what! developers never build on their own money they need buyers to pay them to build!

Posted by: SA1

Just due to mortage cap the rents will not go up...infact the mortage cap helped in putting some floor to the rents as more end-users become landlords the less number of tenants.

For the rents to go up, the most important thing is recovery of the overall economy and not just real estate.

From my view I don't see any hiring drive from the companies here. In fact many companies are still in cost-cutting mode. And government entities are yet to fully manage their debts.



Posted by: Steady

@Kingkaiser; I think we will know in less than a month the impact on rents and prices so let us wait and watch! but where is the existing stock? and if you are referring to the stalled projects coming on stream i think their status has not changed for 4 years with this cap will probably slow down their rehab even further, i bet on a short term spike in rents rather than a long term one!

Posted by: kingkaiser

Thats a 7 year view assuming constant stock, but increasing population. In the short term, the difference would be minimal. There are only a few transactions a month by end users, not millions of transactions. Existing stock will come along anyway, with no one to buy them.

Btw: with an SME focus, Dubai cant allow costs to get out of control, if it wants to see any real growth in this segment.

Posted by: Rich Dad Poor Dad.

Love it , so you really cant loose if you are a property owner.

Great so I will say either you buy from me for the price I am asking for .............OR you rent from me for the rent I am asking for.

Cheers , it's time to celebrate.

I love Dubai.

Posted by: gordon

and there was me thinking the rents were subject to supply and demand, silly me..

I always thought that so long as occupancy rates did not exceed 95% there would be limited upside pressure...
I must have been studying the wrong books.


Posted by: Telcoguy

@Gordon, Nasir, yes for each unit not sold because of this requirements, we have a unit that will be put on rental. Then of course you could have something that really changes the market (like some kind of huge REIT snapping a significant chunk of property and becoming a price setter) but i doubt that
@RBH, you realize that London, NY and Monaco have serious issues to build more units, right? Look around you in Dubai... there is plenty of space. When I buy an apartment in Monaco I know I am buying a 'token' whose supply is tightly controlled (and get me a tax-free card), i know i can sell it in 5, 10, 20 years and the value will be there. As currency goes Dubai RE is qutie easy to debase
@expert, yes you are right that things can get messy for people caught into this

Posted by: RBH

All this is a scheme to re-gain back what's lost throughout all these years during the recession. Dubai had a vision then which is transforming itself into another NYC, Tokyo or even Monaco, and allowing itself to be the place of the rich, the famous and... the rich! Increasing property prices means land becomes expensive, and so Dubai is then perceived and valued as an expensive piece of land and that's power for this emirate. Therefore, no recession or property crisis is going to change the vision of "the only way is up." If ever a recession happens again, just know that if property prices go down, then that's only temporary. You're in Dubai? You have to pay for that. You don't like this? Find another place to live.

Posted by: nasir

I dont think the rent has to increase.

The units kept empty for buyers will become avaibale for rent incresing market availability.

Most of the morgage buyers are already renting a place.

only reason rent should increse is when more poeple come to UAE and less new units are released.

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