UAE said to limit expat mortgages to 50%

Navin Friday, 4 January 2013 6:14 PM - UAE

In case the commentators have missed out on this small irrelevant bit, it is the banks who will suffer the most by limiting mortgages to 50% and are naturally the ones complaining the most! i guess it has something to do with them having to lend money to make money and there is only as much you can give to people as personal loans which they do not need!

Navin Friday, 4 January 2013 7:20 PM - UAE

The only way this 50% cap would make sense to me is when they qualify it applicable to secondary market and not developer sales to prop up the primary market / off plan sales which remain comatose!

The Consultant Friday, 4 January 2013 4:03 PM - UAE

@telcoguy, yes I am well aware of the property crash, with some areas losing up to 60% from peak. Whilst we have seen a recovery in some areas, most developments still seem to be at least 40 - 45% below peak and IMHO unlikely to see a massive drop in value from here, unless of course something fundamental changes such as dramatically reducing the LTV that most buyers can borrow (oops......).

It's also a bit simplistic to assume that any owner will automatically drop an underwater property. I'm not aware of any banks giving non-recourse mortgages here, but if any are then they frankly deserve to lose money. Assuming the bank has recourse then a buyer would have to consider whether the bank could find them in their home country, whether the bank could get a judgement enforced in that country and if so, if the borrower has any assets they could seize as a result. In short the bank has to do a proper risk assessment and base the LTV on that.

Telcoguy Friday, 4 January 2013 5:46 PM - UAE

Yes, in your opinion this is unlikely to happen. The Central Bank has a different one, and they need to think not just of today market prices, but (one would expect) longer term

My view may be simplistic, but I am fairly confident that it is widely shared. And certainly no more simplistic than assuming that I will return to Spain. I can give you my own example:
I just opened a bank account and they asked me for an address in Spain. I left Spain in 1995. Since then I have lived in 7 countries before landing here. Still they insist need an address in my country of origin.

Honestly, can you conduct proper due diligence on a transient population like Dubai?

So, to summarize, you have a different take in real estate risk than the Central Bank does. Fair enough, in fact your view may be more accurate. Still, if you are wrong you will not be the one picking up the pieces, you (same as I do) have a put option (the so often mentioned road-to-the-airport). They don't.

mama Thursday, 3 January 2013 11:12 PM - uae

when they know the property prices are gonna go down this year, they will make this law so the buyers will have to pay 50% cash in so when the prices went down, a buyer will not leave everything and go because he has paid his savings of 50% already so will have to stay and wait and pay the mortgage.... I think its a good move for the real estate market, it will control the prices as well as will not make another bubble,,, but definitely not good for real estate agents

Essam Thursday, 3 January 2013 2:30 PM - UAE

@ SA1, the fact is buying a property does not entitle you to anything other than your property. You are a welcomed expatriate who has a homeland, period! Wake up and smell the coffee and do your homework before crying wolf later. Just in case you feel your homeland is not worth returning to, then may be you actually should to make it a livable place just like the UAE.
As to the mortgage market, there is no doubt that it must be regulated.

FormerExpat Thursday, 3 January 2013 10:09 PM - USA

@Essam....it's ignorance like yours that leads to erroneous short term decision making like this new mortgage cap. Rather than encouraging people to return to their homeland (which I thankfully did a couple of years ago), perhaps you should be focused on encouraging more people to invest in the UAE. If the government is truly concerned about speculative activity, perhaps the introduction of a functional credit monitoring and reporting bureau would have been better. This would serve to ensure people (expats and locals) don't assume too much debt and people aren't buying multiple apartments as investments unless they can truly afford to do so.

As for your comment on price depreciation, this has happened in every market around the world, and the credit losses for defaulters was borne by the banks. I am not aware of any other market where the government has interceded to dictate credit policies to the banks. Surely even the overpaid bankers in Dubai can figure out their credit polici

Telcoguy Thursday, 3 January 2013 5:03 PM - UAE

@Essam, I could not agree more with you Essam, and that is why for a long time I have wondered why people would like to get into a long term investment here. This new regulation at least is consequent: if you do not want to protect foreign investors rights it makes sense you make it difficult for foreigners to invest here. I for one welcome it
@TheConsultant, yes it is relevant. Ideally people would act the way you describe. But recently we have seen drops in value of up to 50%, maybe more. Furthermore, as most models failed to recognize, prices did not move in isolation. So when market tanked you had a drop in value, people leaving their cars at the airport, and leaving an unsellable property to the bank. This was an ugly mess, have we forgotten?

And no, banks are not OK because they have collateral for the loan. Becoming a landlord is not the bank's business. I am really surprised by so many people's reaction to something that to be fair is quite a rational decision.

Stephen Thursday, 3 January 2013 4:31 PM - UAE

It's comment such as yours and that from Basma that colour these forums so badly. Most of us can't be bothered to answer but occasionally someone has to, if only in a vain hope that you may reread what you have written and reconsider.

I sincerely hope that more people read them and understand what idiocy and flat headed ignorance abounds. What possible purpose could there be in investing in anything in this country when attitudes such as yours are so commonplace.?

The Consultant Thursday, 3 January 2013 2:29 PM - UAE

I don't see the relevance of expatriates limited/uncertain residence in the UAE to this decision. When it's time to leave you can either sell the property or keep it as an investment and rent it out. You don't have to live here to be a landlord and you don't have to walk away from a property and a mortgage just because you have left the country. At the current market prices a LTV ratio of 70 or 80% should be enough to ensure the banks don't lose out if someone does end up defaulting.

As other posters have said, this will kill the market for genuine end-users whilst doing nothing to deter the speculators and flippers that drove the market up the last time. These people use cash, and even if it's borrowed money it's not by way of a mortgage.

Chetan palan Thursday, 3 January 2013 11:54 AM - UAE

It is good that Central bank is limiting expat mortgage to 50%.It makes prudent sense considering that expats in UAE doe not have permanent Resident Visa Or residency permit .This is a decision of UAE Government & we as an expat must respect it.Under this situation, obviously our(majority of Expats who are on JOB in UAE) stay in UAE is affected by many reasons which are beyond our control.
Obviously this is a major factor , considered by any financial institutions ,in disbursing Loans,because they do not want to be in business of owning foreclosed properties , when going gets tough & market comes down due to various reasons beyond their control.Also,if you look at various countries, residents get normally max 80 % of the value of property as loan.Infact UAE if restricting this to 70% for UAE national is quite prudent,though it may sound a bit conservative.
Good decision in long term, though may hurt market in short term, as it will reduce speculation.
Chetan Palan

Sandy Thursday, 3 January 2013 11:54 AM - UAE

Right now, an end-user / genuine investor need to put additional 10% of property value from own pocket (2% brokerage, 2% Transfer Fee, 2% Mortgage Registration Fee, 1% Bank Fee and 3% Misc things like valuation, paper work etc).
New ruling will make the total burden on buyer to almost 60-70%. If I can arrange this amount of money when buying, why to go to bank for arranging just 30% of money and go through so many admin hassles? Which country in the world has such cap on house loan, which is directly linked to country's economy - more people buying homes.
I did not see many flippers going through financing option (as it in anyway eats 10% on top of market price, not to include early closure penalty) so this move by central bank does not make sense

mra Thursday, 3 January 2013 11:51 AM - uae

what about properties being offered by developers with installment schemes over 3 years probably that should become more popular whereby yo can pay the 50% in 2 years or so and then be in a position to mortgage if the law persists.

Basma Wednesday, 2 January 2013 8:07 PM - UAE

Don't all expats know well in advance that they are here to earn a decent living not to become permanent settlers? The current laws are just fine and any law to upgrade the status of the expats will further exasperate the demographic imbalance which already poses a great risk to the identity of the country and its citizens. Is it engraved anywhere that if you are born here or work here you would AUTOMATICALLY be entitled to become a permanent settler? Be more objective and practical, plan your lives in accordance to the realities on Terra Firma and always always always have a contingency plan. Happy New Year!

Telcoguy Thursday, 3 January 2013 11:55 AM - UAE

@Debbie, is this the first such a post you have seen?

SA1 Thursday, 3 January 2013 11:54 AM - UAE

@Basma - All expats understand very well that they are only guest worker...so guess wat...i would say that UAE should pass a law banning expats from making investment in freehold properties. (after all there are only here to earn a decent living which rented properties can give and then go back home)

Can it do that? When you intend to ask all people from every where in the world to come and buy your real estate, don't expect that investors will not have demands.

They will have demands of all kind, permanent residency, naturalization for long term residency, opening up society to be more accommodating for their lifestyles, building up more / different religious places, laws safe-guarding investment and their own identities and so on.

And if you are not still aware...look around ... most of the above has already happened, and more change will happen to this place the more freehold investment is sought from external people.

mama Wednesday, 2 January 2013 7:45 PM - iran

very good news for the real estate market .... who ever out there looking to purchase any real estate, wait another 6 months, will end up buying it for half price. cheers