UAE said to limit expat mortgages to 50%

Mel

I agree with Telcoguy, most of the real estate buyers are expatriates but when you lose your job which is not uncommon in this uncertain global economy you will have unpaid mortgage installments which will ultimately lead you to jail time. No permanent residency makes it a very high risk to take.

FormerExpat

@Telcoguy...you are confused. According to your logic, no bank should ever provide any loans to any expats then, as they are all short term residents who could flee at any time. If you actually look at the loan losses incurred by banks in the UAE, you will see that losses from local customers far exceed losses from expats (on a % basis), so once again, your theory falls flat.

Mario

I think the point here is value of the property. The real value of the property is max 50% of what people pay. This way the banks are protected when the next bubble bursts and they get their money back when people default.

Sad, but true I'm afraid.

Arjun

If anyone has hit the nail it's Mario. I'm with you bro on this. People can always point us to the direction of the airport, but truth comes by hard which is tough for them to swallow. No community living, no guarantee on anything & we have so many people ranting. Earn here, invest somewhere else, PERIOD. Life's good here to earn definitely i don't doubt it but somethings just don't change.

Abdul Wadoud

The Central Bank must be commended for regulating mortgages in the country. We cannot afford another property bubble resulting in a banking sector heavily exposed to the property downturn and entangled with never ending legal cases. Are all these mortgage customers eligible for these mortgages with a very long tenure and can they truly afford such lending products? If they were, we would have never had UAE nationals borrowing beyond their means and expatriates buying properties and fleeing the country. It is high time the UAE property market is regulated to protect the consumers and lenders and to make a distinction between buying a house to live in, versus buying a house as an investment. The property market must be tamed otherwise the Law of the Jungle will prevail where the unscrupulous and ruthless can only survive.

FormerExpat

@Telcoguy...while my daughter is indeed precocious, even an average child could understand the fundamentals which seem to elude you. You seem to be taking great pride in understanding the fact that expats pose a greater credit risk than locals. I hate to say this, but you aren't the first one to come up with this brilliant insight. Bankers obviously understand this as well and have designed their own credit policies to require either increased security or higher rates to compensate them for the increased credit risk. Again, I don't understand why the government would need to get involved for an issue like this that is irrelevant to them.

As for your argument on government bailouts, the UAE government would never lift a finger to bail out any foreign bank. So why is it imposing its rules on all banks, local and foreign?

The previous environment of speculation had nothing to do with mortgages, and could have easily been prevented with a basic credit bureau, which is still need

FormerExpat

@Abdul Wadoud, my 4 year old daughter has a better understanding of economics than you do. How in the world will artificially crippling credit policies of private banks help protect the country? All this new policy will accomplish is artifically depressing the property market by stifling the fundamental demand.

If banks are so concerned about defaults and loan losses, they are free to change their own credit policies by reducing their LTV's or enhance other credit criteria. Why must the Central Bank intervene to set rules for all institutions?

You are confusing regulating a property market with government meddling in the private sector...

Robert Mohamed

I guess one of the main drivers leading to the collapse of real estate prices post-2008 was the blatant and indiscriminate selling of newly acquired property to make a fast profit. Simply put, place a time restriction on the re-sale by way of penalising those who buy with greater mortgage finance than those who purchase using cash cash. This would stabilise the market and avoid the creation of any inflated bubbles, but allow those buyers who put down a greater proportion of the purchase price in cash to access liquidity. When you over leverage real estate in the private sector, the public sector must step in to support these business lines. That is what Greece, Portugal, Ireland and Spain have experienced of late. Lessons have been learned. so let us try to avoid making the same mistakes again.

Ahmed

Doesn't make any sense. This effectively kills the mortgage market. It directly only affects the end users who cannot get a home anymore. Speculators play with cash and are mainly indirectly affected as this hurts the real estate market and all associated sectors of the economy. Makes you wonder if there is any understanding of basic economics.

will jefferson

Lets put some commonsense and thought into this process.
Mortgages are essential , without them , the economy will tank.
Why?
Simply because , putting 50% downpayment , will take away a sizeable portion of your investment , with no return on it.
We rely on Banks to provide us a mortgage, so we can stagger our payments over 15- 20 years, and at the same time allow our savings (the 50% downpayment) to grow at a rate which is higher than the interest being charged on our mortgage.
Under such circumstances, i doubt you will see more than 10 mortgages a month being passed in the UAE.
As for speculators, i think someone who puts a downpayment of 20-30%- is classified as a non speculator. It is up to the banks to decide and make due diligence based on their research as to how much to loan . After all they too work for a profit - they need to take risks- and pass on their risks to customers in the form of interest rates.

sandman

80% LTV = 1 AED Equity for every 5 AED of property,
50% LTV = 1 AED Equity for every 2 AED of property!

Cash buyers = distressed sellers = tanking prices.

If you want to reduce the average property buyers purchasing power by 250% and create a distressed market for vulture investors - THIS IDEA IS A WINNER!!

To control speculation & price bubbles - regulate the paper trading of off-plan sales. This was the hidden UAE RE derivatives market. Prudent lending and licensed valuations also help....

Purple Snappa

This won't happen - the downside risks of doing so are evident. My only thought is that maybe they have a reason to support the rental market (who is going to be able to buy at 50% LTV - certainly not the majority) - make buying an unrealistic proposition and thereby forcing expats to rent?

The real issues are all those projects sold off plan, with buyers mortgaged upto the hilt, not being delivered and no prospect of being completed. There are 1,000's of units out there with real estate projects being mothballed or cancelled. Look around any part of Dubai - it is scarred with semi-completed projects (Business Bay, Marina, Sports City, Dubailand.....).

The real answer is for the legal framework to be developed to support proper real estate development with appropriate penalties for failing to comply with either side of the purchase/supply equation.

debbie

I was planning to buy a property in January 2013. It was a dream property, i drove several times around the block, spoke to the sales agent, and was waiting for it to launch. I was planning to put 20% down and the reamining financed. With this new law, I am definitely not going to be able to buy my dream home.

However, this law has opened my eyes. If laws like this can come and go without taking the customers (end users) in concern, then why should i invest my money here? This law certainly doesnt give any confidence to investor sentiment.

Also, did the Central Bank forget that the 2008 property crash was not caused by bank lending? That was a different matter altogether, and had nothing to do with over financing by banks.

I wonder if the powers that be have thought about the effect on the entire economy - end users, banks, developers, etc? More cash will now just sit in the bank instead of being used.

SA1

Good move....
This is region is traditionally for expat to live on rent, with freehold which is a very new concept here, not much laws to safe-guard investment or regulations to monitor funding is in place.

Expats owning property is mostly speculative, given the uncertainty of job here. Till last year no one wanted to invest and now with recent price surge, there is a rush to get loans, without realizing that the fundamentals here have not changed much.

The problems cited last years are still there.


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