The United Arab Emirates central bank is expected to announce limits on banks' lending for residential mortgages by the end of this year, Abdulaziz Al Ghurair, head of the national banking industry association and chief executive of Mashreq Bank, told Reuters.
UAE banking officials in December 2012 announced plans to limit mortgages to 50 percent for first-time foreign buyers and 70 percent for locals, while levels for subsequent homes would be set at 40 percent and 60 percent.
The measure aimed to prevent a repeat of the 2008 real estate crash, which saw prices in Dubai and Abu Dhabi slump around 50 percent from their peak. At present, banks in the UAE are allowed to lend 100 percent of a property's value to home buyers.
Following an outcry by commercial banks, officials agreed to soften the cap and in March agreed, in principle, the cap should be set at 75 percent of the value of a property for foreigners who are first-time buyers and 80 percent for local citizens, sources claimed.
Ghurair said on Tuesday that under the revised rules, expatriates could not finance third or subsequent homes with mortgages; they would have to pay cash.
"I expect it before the end of this year to be announced. It was discussed and the views of the association were taken. There is a general agreement on the levels," he told Reuters.
At a meeting of the board of directors of the Central Bank in July an update on the drafting of the legislation was ordered. “The board of directors of Central Bank of the UAE held its 4th meeting for the year 2013 during which it took note of the latest developments regarding draft of the Mortgage Loans Regulation, which had previously been referred to the concerned agencies for study and feedback, and instructed follow-up with the said agencies,” the WAM news agency reported.
Foreigners account for about 80 percent of the UAE's population of roughly 8m and are major buyers of real estate in designated areas where they are permitted to own property.
Ghurair this week also revealed the central bank is expected to announce rules restricting the amount of exposure which banks can have to the debt of state-linked entities within one or two months.
"It is already finalised by the central bank. Now the central bank just has to announce it - I think in the next month, two months max. It's already passed the board," he said.
"We will have to wait and see what is the final decision. I'm sure some banks will seek time. There will be some slight changes but the good news is that other loans are growing so the overall proportion of GRE loans is shrinking."
He added, "The central bank said, 'This is the guidelines and we're willing to sit down with each bank and discuss with them how much time we're willing to give and what they need to adjust.' If I tell you to lose weight - 10kgs now - you can't. You need time - it can't happen overnight."
The central bank tried to introduce the rules last year as part of a drive to reduce risks and prevent any recurrence of Dubai's 2009-2010 corporate debt crisis.
But it suspended the rules after banks complained the regulations would slow growth of their business and could cause them losses if they were forced to unload some of their state-linked loans quickly.
Lending to government-owned enterprises by some of the UAE's biggest banks is currently well above the ceilings envisaged by the central bank last year. Sudden reductions could hurt not only the banks but the Dubai government, which has increasingly relied on loans from local banks for funding since the crisis.
In a research note last week, Bank of America Merrill Lynch calculated that the UAE banking sector's exposure to the government and non-financial public enterprises as a percentage of bank capital was at 104 percent, the highest ratio since the late 1970s.
Ghurair did not give details of the upcoming rules. Bank of America Merrill Lynch said UAE banks had proposed that bonds and sukuk be excluded from the limits, which would reduce the total amount of exposure to be regulated by about a fifth.
* With Reuters