By Shane McGinley
Mortgage market though down 60% since 2008, is currently showing slight signs of recovery
The debt crises in Europe and the US will make mortgage financing more difficult in the UAE next year and could hinder signs of resurgence in the sector, analysts have warned.
Official figures from the Dubai Land Department found the total value of the mortgage market in Dubai rose 45 percent to $13bn in the first eleven months of 2011, compared to the same period last year.
The value of mortgages issued was down 60 percent since the boom era of 2008.
But these signs of resurgence may come under threat next year as the impact of the eurozone debt crisis takes hold in the Middle East and liquidity tightens up again, experts said.
“Mortgage finance will become more difficult as deposit levels appear to have come down again at the banks, and the European/US banks will be reducing their interbank lending which will affect the UAE banks,” Charles Neil, CEO of Dubai-based estate agency Landmark Properties said.
Official data from the UAE Central Bank last month showed bank deposits in the country have dropped by $16bn, Bloomberg reported. The combined deposits at 51 lenders in the country fell five percent last quarter to AED1.067 trillion ($291bn), the first drop in at least six quarters, the data show.
Banks are also paying more for funds, with the one-week borrowing rate on the interbank money market averaging 0.32 percent this quarter, up from 0.25 percent in the previous three months.
“Global liquidity pressures could definitely have an impact on the UAE lending market,” said Jean-Luc Desbois, managing director of Homematters mortgages consultants. “If liquidity dries up in Europe and the US then obviously that will naturally affect the banks here, especially the international banks.”
However, “it is not a certainty to happen next year”, he added.
Desbois is optimistic the UAE mortgage sector could weather the storm. His confidence is based on the fact that customers are still showing strong demand.
“We did our best month ever this month, which is ridiculous bearing mind it is the 22nd of the month. We are seeing big transactions with. We have had a number of mortgages significantly above AED10m coming through, which is really good,” he said.
Dubai was one of the hardest hit real estate markets in the Middle East when the global financial crisis saw prices tumble nearly 60 percent and half of projects were put on hold or cancelled.
Investment bank Citigroup reported last week the value of construction projects scrapped or on hold in the UAE soared to $958bn in the 12 months to October.
Absolutely not a period in world economics when local banks will be keen to lend, little cushion from international banks, many conducting their affairs through the European Central Bank. Long hard road for the eurozone, with a number of countries maybe unable to sign up to the new plan after all due to taking it to the people.
Iranian sabre rattling just across the water to add to the mix, so buyers may step back altogether and see what happens in Europe in the first-half of 2012. But in essence the outlook is entirely grim, the Greeks are suffering a massive dip in individual income, Italians will follow shortly, Ireland and Spain have to face the same. There will almost certainly be a political change in France. It is not a recipe for stability in any lending market, certainly not low risk.
On the contrary, with the European Central Bank lending equivalent to US$ 650 Billion in 3 year money and the Federal Reserve pledging to keep Fed Funds rate at zero percent through 2013, we can expect a lot more liquidity to seep into UAE markets next year. Mortgage volumes will increase and rates will decline.
Mark my words !
And I was pleasantly surprised to see no mention of misleading figures for future supply .
In the meantime population continues to grow at 100,000 per annum.
Draw your own conclusions about Dubai's residential real estate market .
Whatever the veracity of the figures relating to pending inventory, it's potentially reasonable to say that there will be several hundred Shoreline Apartments on the Palm added to the mix.
Plus the European Central Bank lending is directed toward the purchase of sovereign debt among eurozone members, not to be reinvented as loans to UAE banks and their mortgage clients. If not the euro will go bust. Believe me 650 billion euros is a drop in the pond. Italy alone is looking at needing 200 billion next year!
Plus one of the gentleman quoted in the article is an ex-banker of some considerable experience, who I feel sure keeps his finger on the global financial pulse.
Any plans on buying one of the soon to be empty properties in the palm? I am sure you will have no problem securing financing from som Spanish, French, German or British banks and they will come really handy when all the 100,000 new residents arrive.