Dubai expats are scrambling to close property deals amid confusion over whether lenders will honour existing pre-approved mortgage deals following a 50 percent lending cap introduced by the UAE Central Bank, real estate professionals said.
In a Central Bank circular issued on December 30, a 50 percent ceiling was placed on UAE expatriate mortgages, while a 70 percent limit was placed on mortgages for UAE citizens.
As some of the UAE’s largest banks meet with Central Bank officials in Abu Dhabi to review the new policy, many residents holding existing pre-approved mortgage agreements are now rushing to complete deals.
“My agreement is due to expire in a few days and if I don’t buy now I will lose the home I want as I will not be able to afford a house under the new rules. I have to buy today. It is very stressful, I should have bought an apartment last month” a Dubai resident told Arabian Business.
“The pre-approvals should be used as soon as possible,” Sam Wani, general manager at Dubai-based mortgage brokerage Independent Finance, said.
“[Authorities] haven’t said [deals must be be finalised] by the end of this week, but the normal pre-approval life is 30 days. If they don’t use pre-approvals they cannot be extended.
“The ones that have been pre-approved, they stand as they were signed off by the banks... So legally the banks have signed them,” he said, but added that only some banks were honouring the pre-approvals, while others were waiting for further direction from the Central Bank.
Jean-Luc Desbois, managing director of mortgage brokerage Homematters, said around half of UAE lenders had so far adopted the 50 percent cap for new applications, while “a handful of banks are still business as usual”.
“At the moment everything is up in the air, it is confusing… We have had a number of banks who said they will honour all pre-approvals until they expire but some are looking at that and are making a decision,” Desbois said.
The confusion has been of benefit to some landlords. One Palm Jumeirah owner told Arabian Business that they had been offered a premium on their home's value of nearly third in order to close a sale signed with a buyer holding a pre-approval mortgage agreement.
However, Priyesh Patel, head of the sales and brokerage division at Dubai-based Aston Pearl Real Estate, said mortgage holders should check the small print in their agreements.
“Our MOUs have a ‘force majeure’ clause in them and something like this, I would honestly believe ‘force majeure’ would apply, it is not the bank that has gone back, but the Central Bank has changed the law, which is not something we can control,” he said.
Expatriates make up the vast majority of the UAE's population of roughly 8m. Foreigners are allowed to buy property in designated areas; many from countries such as Iran and India have done so because they see the UAE as a haven from political and economic instability in the region.
“Left, right and centre, everyone is calling in for guidance and we are trying to help as many people as we can,” said Wani.
Bankers said they were shocked by the circular, which could hurt confidence in the real estate market's recovery and hurt the share prices of property developers and banks.
"They are trying to regulate banks, but are controlling consumers by giving them limited choices," a senior executive at a local bank told Reuters. "It will lead to less investment by end-users."
An Abu Dhabi-based analyst said: "If implemented, this will impact on the real estate sector. After the property market improved, some banks had started lending up to 85 percent on some projects."
The analyst added: "It's positive when we look at the financial and lending perspective, but the question is whether this lending cap is practical."
Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.