Mortgage cap could boost Dubai rents

Property experts are split on impact new mortgages regulations will have on emirate’s real estate sector
By Claire Valdini
Tue 08 Jan 2013 02:59 PM

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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Last Updated: Thu 26 Jan 2017 01:27 PM GST

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