UAE 50% expat mortgage cap to dent recovery

Expat

Continuation to my reply to SA1, as to Why?

* Dubai is one of the strongest contender for World expo 2020
* The infrastructure development has never stopped
* No other country has achieved what Dubai has done in last 20-30 years
* We have 8 Million visitors yearly
* Population is around 8 Million with 80% from foreign land, Why?
* One of the lowest crime rate & highest per capita income
* UAE owns one of the largest sovereign wealth, oil & several
* Why several International Hotels are queuing up in Dubai
* Why 50% of world retailers house their shop in UAE
* Where do you see a president so humble driving without a caravan
* Where would you expect a dedicated airport for A380, world tallest tower and Palm
* Almost the largest fleet of aircraft

Dubai, a country so young has a dream and a vision to build world's largest and host international events. They can succeed and may fail in some.......natural. But imagine if they achieve even 50% of what they dream!!!!

SA1

Why one should buy property in Dubai?
- Are the laws towards inheritance transparent ?
- Due to extreme climate buildings exteriors erodes fast - what happens after 15 / 20 years? Will the Owners association have money for major revamp? Are these OA having sinking fund? Most of the current landlords are interested only in maximizing the rental yeilds and are barely paying service fees for current liabilities
- Strata law still in the making - Freehold properties are not under Dubai Municipality management. One of my friend has a road accident inside freehold area and Dubai police told him there are different rules/procedures, had he been hit in adjacent road which is outside freehold insurance claims and court procedures would have been straight forward.
- Seriously which buyer here is having long term view (10+years),



Expat

Hello SA1, To answer your questions:

- Its better to buy than to pay rent which is lost, calculation still works in favor to own than renting
- Yes, to some extent it is but you can get a will made attested by Dubai court for a full proof
- I still see World Trade Center after 33 years
- Most of the developed community fall under DM limits, Greens, Downtown, Marina etc.
- 10 Years back no one had a long term view on China but frankly they can just digest most of the developed nation

chetan palan

When central bank Or authorities take such a decision,It is with a broader perspective
Probably in their opinion , they want people to come in UAE & invest with more of their own Money,rather than borrowings.
This cud be with an intention to strengthen the view that UAE is a safe place even if one invests 50% of capital form their capital.This in long run ,gives positive message to Long term investors,rather than short timers ,who may exit after taking a Cream off the property causing volatility.This will stabilise market on a long term.
Anyways, people are coming to UAE for Investing otherwise also due to variety of reasons .
It makes sense for the authority to use the opportunity ,to cool down OR keep market to realistic level & at the same time, to test appeal of UAE to investors.
Lower property price /rents cud be advantage for residents.But that is an offshoot.
In my opinion authorities are trying to achieve more than one results with this step in a good direction

Geko

RE agents and Speculators are not the creators of bubble. Bubble is nothing but abundance over ability to consume. It was in front of our eyes, none other than greedy investors to blame.

Time being, 50% slab is the right move. Existing properties are locked to some kind of less troublesome payment system and will recover eventually. Otherwise, as a buyer we would create one more bubble with free flow of finance that will be hard to digest as a person or as a country. Simple term, we do not have as many number of families to occupy these developments.

Sorry guys... Time being, banks and RE are not the right place to visit if we do not like bars.

george anderson

Reality Check- here is a reality check for you.

People are more likely to lose their jobs in the US and UK than in the UAE. Do you stop Mortgages there as well?

Mortgages are a reflection of an advanced economy, where every working person has the right to invest in a home and not lose his money in rent.
Lets say someone buys a property for AED 2 million and pays back a principle of 100,000 x10 yrs=1,000,000. On leaving the UAE , he could probably sell the property for AED 1.5 million and still make a profit of AED 500,000. As opposed to paying a rent of 150,000 x 10 years= 1.5 million

I hope this made sense to you- in the absence of a mortgage system, Dubai would just be another small town with big aspirations and not a great city as it is now.

You need to look at the bigger picture as well- loss of jobs in banking sector, retail, interior designing, furniture , consumer sector etc.

Will also lead to more people using UAE as a "Saving Place"- and remitting their money back home.

Straight

Really? How many of your staff have job guarantee for 3 yrs and above? atleast yourself if you are not a local... Many other ways to make money than trapping with glossy, we had enough earlier...

Hadi S Shaikh

As harsh as it sounds this 50% rule is correct for UAE, if this was around many people like my self included would not have to buy over price property and all the negatives that came with it..



Geko

George, provided the investor survives his first renewal with the existing company after his down payment. If not, he has to pickup a new job in 30 days or entire money still face jail for PDCs.

How many of us can get 10 or 15 years guarantee from our employer especially when the region is prone for bubbles and dubbles?

By the way, we have so many lob-Georges and lob-Sams now a days. Come on and come out with genuine proposal with real name guys...

BLET

And then you get an uncontrollable number of people speculating and creating a bubble that when burst will disappear and leave the good ones in a mess. Fifty percent sounds about right.

Similar to your example: Let's say you buy a property for AED 2 million and pay back a principle of 100,000 a year. Just interest the first years it will be around 100,000AED (JUST INTEREST!). After 3 years prices don't do so well and what you have paid of the capital is only around 15-20% probably and that is IF you put a down payment, otherwise you are probably around 5-10%. Let's say prices decrease 10-20% in the following 2 years and you realize you're in the negative.

I am very happy with this rule. It is the only way to avoid the irresponsible to screw us the responsible ones.

Realty Check

In my opinion, the concept of mortgaging should be done away with in the UAE. Not intending to create a sensation here but consider this - the duration of a home loan is typically 15-25 years. Just tell me how does an expat know he is going to stay here for that long?? There's no PR, no citizenship, no job security so how can you look at the horizon that far ahead. Freehold should only be limited to cash buyers who have enough money to buy a second home and dont need a job to fund it. All hell breaks lose when expat home owners having a mortgaged property lose their jobs and cannot stay more than a month in the country thereafter, especially when the market is on the decline. Banks are left with properties that are worth far less than the money they loaned for it!

The Consultant

Why stop at mortgages? If the central bank are really that worried about defaulting foreigners, they should stop all loans to expats. In the long run it could make life much easier for everyone - it might actually result in lower rents and better payment terms from landlords, for example. And people would not be able to spend money they don't have on stuff they don't need like luxury cars, giant TVs, holidays etc. and might actually end up saving some money each month. Of course, it would mean a serious loss of revenue for the banks and loss of income tax for the Finance Department, but maybe that's the price you have to pay for total security from bad loans.......

Just because a mortgage is scheduled to last 15 - 25 years doesn't mean it actually has go that long. Many people will pay their mortgage off, or sell their property, long before the final payment is due. Even if someone loses their job, it doesn't stop them renting the villa out to cover the mortage payments.

Ian Powell

I personally feel the 50% is an excellent idea.
What is good today is interest rates are more affordable, at 5.5 -6.5%
Nice place to be if you have some money (505 LTV) and no debt,, the kind of people the UAE wants.




realiste

your exclusive mentality is clearly singly held. UAE Banking CEOs themselves are clamouring for change with direct appeals to the CB for an upward revision.

Amit Jain

There are plenty of factors to consider here. On the top of my list is a concern for the government?s valuation levels. Why drop the LTV all the way to 50%? Are current property valuations at such disproportionately risky levels according to them? Secondly, while Telcoguys?s points are well taken, the one about transient population tends to invoke the impact of (sudden) loss of income on mortgage defaults which, as per academic studies, evidently takes material effect only in cases of high mortgage exposure in the market. In that, if we are only discussing freehold property for expats in terms of market valuations then fair enough, but that sort of leaves the generic price-yield theory unaccomplished. The price-yield theory dictates that freehold and local property valuations cannot move in different directions or in the same direction at significantly varying betas. (Contd.)

Ronald Hofer

We were looking to buy this year, however this change means one of two things, either we invest in Real Estate in europe where prices are much more stable and interest rates are very low, or we move the money offshore where we at least get decent ROI and service. Very sad as after 6 years here we want to stay much longer, only the country will not profit from our savings.
If you want to stop speculation there is only one way, introduce a fee or tax on the profit if the property is sold within two years .Switzerland did this in the early 90's and has one of the most stable property markets since; for a country which has very limited supply and very limited land reserves. Simple but effective and hits only the speculators.

BLET

Of course Dubai does NOT need speculators. Any increase on the price by speculation is not real and the market will put the right price eventually at a higher cost.

The fee everyone talks about is no solution. The fee or tax will not stop people from fleeing if they are on negative equity!

SA1

Who said Dubai does not needs speculators...they were the ones who initial cause the big boom and may be they want them back to push up the prices again.

vicky

With 50% loan cap, the rent market i.e. landlords will benefit.
end user unless is not cash buyer will have to rent in which case rents could go up further.

ANP

The Central Bank should look at strict vetting of applicants and not bring 50% and demoralise the property Sector . Property Prices in Dubai are still relatively cheaper than India and UK.
One suggestion would be to introduce different interest rates so that the Banks are not in trouble . Give 3% for a 50% downpayment and 10% to a 90% one.


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