UAE mortgage cap plan to impact house prices - JLL

Jones Lang LaSalle says UAE central bank proposal will limit Dubai price rises in 2013

The UAE's plan to impose a 50 percent cap on mortgages offered to expats will likely curb house price increases this year to below those seen in 2012, Jones Lang LaSalle said on Monday.

Its fourth-quarter report on the emirate's property sector said that while Dubai could see a broader based real estate recovery in 2013, issues such as oversupply and the UAE central bank's mortgage proposal could weigh.

Commenting on the report, Craig Plumb, head of research at Jones Lang LaSalle in MENA said: "The recent UAE Central Bank announcement about caps on mortgage loan-to-value ratios shows that government authorities are concerned about market stability and want to avoid any rapid increase in real estate prices."

He added: "2012 ended with a flurry of new project announcements as increased confidence has returned towards real estate.

"While there has been a recovery in rents and prices in the residential, retail and hotel sectors during 2012, this improvement remains focused on a relatively small number of projects," he said.

"As we move into the New Year with renewed optimism, we are likely to see a broader based recovery in 2013 but this recovery will remain challenged by the current over supply and high vacancy levels."

The Jones Lang LaSalle report said Dubai's overall residential market recorded a positive year, with the villa market continuing to outperform the apartment sector.

It said prime projects in well established locations continued to see improved performance, but secondary locations were "still suffering from rental and pricing declines as tenants relocate to new high quality projects".

The report added that Dubai's real estate investment market had remained quiet over the fourth quarter of the year with no major open market commercial transaction recorded.

"Despite the lack of transactions, investment sentiment in Dubai is improving. The optimistic outlook is reflected in Jones Lang LaSalle's latest Investment Sentiment Survey, which shows investors from the region perceive Dubai as the preferred market," the report said.

Improving sentiment and stronger economic fundamentals have resulted in a series of new large-scale projects being announced, it added.

The most significant of these is Mohammed Bin Rashid City to be developed jointly by Emaar and Dubai Properties.

The new city will include the world's biggest shopping mall (Mall of the World), a Universal Studios franchise, hotel facilities and a large public park. The project was initially launched back in 2008 but has been revised since then.

The JLL report also said demand remained strong for retail space in Dubai's best performing super-regional malls, resulting in improved prime rents at AED 4,900 per sq m.

"The two-tier market continues, with older malls witnessing subdued demand from consumers and retailers, resulting in a wider gap between primary and secondary centres," it said.

JLL also said the hotel sector had performed well throughout 2012, supported by strong tourist arrivals and the opening of a number of branded hotel chains.

It said occupancy rates had risen to 77 percent (year to November) compared to 74 percent in the same period of 2011, as well as an increase in both average daily rates and revenue per available room.

"This positive trend is set to continue in 2013," the report added.

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Posted by: Red Snappa

Remember to be considered a mature property market, there has to be some reasonable balance between investor and end user owned properties. A 50% LTV mortgage rule applicable 91% of Dubai's population, will completely skew that balance.

Although, there is something to be said for equity release on existing property in a low interest zone elsewhere, perhaps.

However, as has always been the case, the state of real estate markets elsewhere will have a bearing on what happens in Dubai, and it is better to keep prices low or even drive them down in comparison to other mature markets, to maintain a value attraction.

I do however, like the Malaysian discipline of a 5% tax or even higher on an incrementally decreasing basis should the property be property be sold within 5 years, as an alternative to the 50% mortgage ceiling.

Posted by: Akbar Kazmi

The 50% lending cap by CB to expat buyers should be seen in the context of int'l norms since it is one of the most stringent when compared to U.K., Europe, Far East, and many Gulf countries who have allowed expats to own freehold properties. Malaysia did the best thing when trying to control speculation. They continued to allow banks to lend 75% to expats for property, but they introduced a sales tax on the sale of property on a tiered basis. If a new buyer sold the property after 5 years of holding it, there was no sales tax on it. But if sold within a year the tax on the sale price was 5 pct, reducing annually to zero pct at the end of 5 years. This is a much more sensible way of controlling speculation than by imposing the new lending cap, which will disuade genuine investors, hurt the developers, the banks, and the economy. Will lead to oversupply, and falling prices, not good for banks either. I feel this approach should be considered and the lending cap maintained at 75%

Posted by: GBF

Akbar is right on the money here. This is the exact policy to be adopted.

Posted by: Ed B.

It is excellent news that UAE Central bank takes effective actions, that will see great future benefits for the UAE. This move will help to keep the housing market healthy and gain quality investments over speculation. I?m also a strong believer that the move will have no effect on rents; in fact there will be a higher number of properties in the rental market as much of the current properties that are build are developed under speculation market conditions.

I also wanted to make note, that UAE Central bank is right to keep a very strong tab on bankers. I believe there is enough evidence that bankers have it too often wrong, and that the banking culture still need a long way from being responsible citizens in world economics. There has to be a much better balance in objectives to serve the own business, customers and national economy. Unfortunately, the latter 2 are less priority today for bonus carrying bankers.

Posted by: Horseman

Nonsense. It will completely skew the market where 95% of the population cannot afford to buy property in UAE. This will mean that investment companies and wealthy individuals will be able to exploit their economic power, creating a false market. This will only lead to market manipulation & rents WILL go up.

The lack of villa housing stock is a problem - families who are wanting to make the UAE their home for the forseeable future are limited in their options - these are the very people who could have afforded a mortgage under normal circumstances yet are being DRIVEN into renting.

By all means impose a sales tax, or profit tax and make it painful for those who seek to flip properties with high rates in the early years.

I have just paid over AED80,000 to the land registry department to list my modest villa. Can you not see what is going to happen to transaction volumes (oh, and jobs for the Emiratis who do the processing).

A proper legal framework is what is really needed!

Posted by: Real estate expert

Hans is right, I still can't believe what I hear and read from people sitting on the fence. All reassuring statements from bankers and likes of JLL are only made to soften the blow and not sent the market into a panic. I work for one of the most active property valuation companies in Dubai (RICS) . I can confirm that reports going out on residential properties in Dubai's freehold areas are being valued at least 25% lower than before the 30-12-12.

Posted by: Torpedo Ray

Errrr....yeah right! a matter of just over a week property values have not fallen by at least 25%...we will probably see a limited fall over time as the market digests the Central Bank missive but comments like yours, whilst lacking any substance, certainly do have a comedic value so I commend you for allowing me a fine chuckle this morning...

PS: back to fantasy land for you!

Posted by: I dont buy it

This makes sense. I don't believe the statement of "there's 80% cash buyers so market will not be affected". I was about to buy a property and now I am putting my plans on hold for a few months. By the way, I wonder how long it will take for the market to stabilize?

Posted by: Raed

@ Iqbal, better late than never. The central bank is worthy of respect and high regards for intervening and let us hope they stick to the mortgage cap and do not cower down to the avarice of the insatiable banks. If the rents increase, well lets just pack and shift to Sharjah and further to the northern Emirates but we cannot and must not allow the real estate brokers take advantage of this mortgage cap by squeezing every Fils from our savings, those days are long gone but not forgotten.....

Posted by: Formerexpat

Raed, do you understand the role of a real estate broker? They aren't the ones setting te property prices.

As for moing to Sharjah, talk about cutting off your nose to spite your face!

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