By Courtney Trenwith
Courtney Trenwith argues why nationals should not be the only ones offered home loans worth 100 percent of the property value
The recent announcement that UAE nationals will be able to take out home loans worth 100 percent of the property value should be extended to residents as well.
At first it seems absurd to allow customers to take out a mortgage without a deposit. It’s akin to buying a house with a credit card and then being given an extra-long instalment plan to pay it off.
In most parts of the world I would argue a 100 percent home loan is ridiculous: if a mortgagee cannot save a deposit then how will they be able to put aside the loan repayments each month?
But in Dubai, mortgage repayments are in many cases about equal to or less than renting the same property.
So it makes sense to be paying the same amount each month for your housing but actually paying off an asset rather than your landlord’s. The trouble is saving the deposit at the same time as paying the ‘dead money’, otherwise known as rent.
The Central Bank is on the verge of limiting mortgages to 75 percent of the value of a property for first-time foreign buyers and 80 percent for local citizens.
The idea, first raised in December with far lower limits, was in response to the property crisis that hit in 2009-10, causing prices to fall by up to 60 percent.
There is validity in the proposal to force bank customers to prove they can save before taking out a home loan potentially worth millions of dirhams, but in Dubai up to 80 percent of property transactions are done with cash anyway, with investors from all over the region viewing the international emirate as a far safer investment option.
With sale prices rising by an average 20 percent in a year, so too are rents.
The Dubai government this week backed Dubai Islamic Bank to offer UAE nationals 100 percent home loans in partnership with the Mohammed Bin Rashid Housing Establishment, which provides land grants and financing to locals to purchase subsidised housing.
That will help nationals escape the escalating rental market. If only we all had such an opportunity.
Have you thought about what you have written?
100% mortgages for non-locals.
Can you imagine it?
Thousands of expats take a 100% loan. Buy a place that they could never afford. Struggle with the repayments and/or lose their job and have 30 days to find another one or leave the country.
They do what they did in 2009 when the streets of Dubai were littered with abandoned cars as people did not even have the decency to get a taxi to the airport.
The problem is that we don't have the centralized banking system while applying for loan or credit card. One bank doesn't know weather the person has a credit card or loan from other banks or not. Even when asked they would just deny it. That's why people take car loan from one and credit card from another. If the banks can identify that they can easily check the centralized history of the person's loans and credit cards and then decide whether to approve his application for 100% loan or not. There's no harm in 100% loan for expats if they've a good financial record. we can centralize the system either through person's passport number or maybe in the near future through emirates ID.
Nice idea Jahan. But passports can be changed.
There is no control over here by the central bank nor the financial institutes. And sadly they reap what they sow.
Money is handed out on the strength of some flimsy documents and crossed fingers that the loan / credit will be repaid.
Would like Arabian Business to delve into how much debt was left behind in the last crisis and how much was recovered?
the numbers do not stack up...my property costs approx 4 mio (at the beginning of the year). the gross rent is 200k, if you take away the service charges and sinking fund then the net rent is about 120k the cost of money here is about 5%, ie 200k.
I think this is a typical relationship...yields are under 4%
I totally agree with Ricardo, as non locals we can leave the country whenever we want. No country is giving 100% home loans to people which aren't coming along with the passport of the country they try to apply for the same.
I dont see how this is going to happen. The Central bank has only issued this so called partner with DIB for the purpose of helping out the UAE nationals (small fraction of the population). If the whole city is allowed to take a 100% loan and buy property, surely we will face another crisis by the end of 2013. Prices are already increasing quarter on quarter and we are creating another bubble. Surely we do not want another cirisis in Dubai.
Telcoguy got his point straight on. Once the expats take 100% mortgages, they can easily leave and then BANG, no one to pay off the debts.