By Andy Sambidge
UAE property chief says banks are forcing would-be owners into rental market.
A UAE property developer on Monday urged banks to relax their lending criteria for prospective mid-range home owners in order to "get the economy moving again".
Mohammed Nimer, CEO of MAG Group Property Development, which is involved in AED3 billion ($817m) of developments in the UAE, said most prospective owner occupiers were unable to raise mortgages at affordable entry levels in the current restricted credit market.
"These aspiring home owners constitute thousands of white collar workers in both public and private sectors and if they feel that they don’t have a long-term future in the country, they may well not be around when the upturn arrives,” he said.
His comments follow a similar call from Danial Schon, vice president of Schon Properties, which is development the much-delayed Dubai Lagoon project.
A recent snap survey conducted on behalf of MAG Group underlined the problem caused by restricting credit to potential home-owners revealing that in some cases it would be cheaper to buy than rent property.
The survey of major real estate players in Dubai found the average annual rental price for a two-bedroom apartment in Dubai Marina was AED185,000 per annum.
The purchase price of a similar apartment was AED2.3 million, - the equivalent of AED176,000 per annum on a 90 percent interest-only, 20 year mortgage at 8.5 percent a year.
"There are increasingly clear advantages to buying as opposed to renting – if only people could obtain the finance," Nimer said.
"The problem is that most of the main mortgage providers are demanding excessive deposits up front even though property prices have softened considerably already. In most cases a minimum of 50 percent of the purchase price is required – which means a prospective buyer needs to find in excess of AED1 million in cash as a deposit. That is a virtual impossibility for most.
"If banks continue their reluctance to relax lending criteria, potential owner occupiers will remain as tenants, paying more money to their landlords than they would to loan providers. The problem will be compounded in the short to medium term as supplies begin tightening in the rental market while new property built for sale may sit empty.
“Given the billions of dirhams that have been made available to UAE banks, we have to seriously question why they are not restarting lending?
"My message to them is quite simple: you have sufficient capital, so start lending to prospective home owners and get the real estate market, not to mention the wider economy, moving again.”
Developers need to face facts - the banks are not lending because they are protecting their interests. Prices are dropping, why should banks be left with bad debts just to prop up developers businesses? If a developer is so confidence that the bank won't make a loss on the loan, it should make the loan itself - or offer its property on a rent/buy basis.
I have just been offered a selection of Marina apartments at between 105k & 178k. If one were crazy enough (given the fact that the local property market has been seen for what it is) to consider 90% financing, the 176k interest only cost is at the top end of the available rental market EVEN AT CURRENT LEVELS. Yet again the commentator ignores the capital repayment, assuming as always that the gravy train will start again and capital appreciation will compensate. Not only that, service charges are conveniently ignored, as is the fact that many homeowners are paying 9.5% rather than 8.5%. Hilariously, a $600k 2 bed apartment is considered entry level. Happily, most residents are wise to this horseplay by now. It still grates, however, that this potentially manipulative nonsense gets even a limited airing.