HSBC Holdings is making it easier for homebuyers to get
loans in Dubai as one of the world’s worst-performing real estate markets shows
signs of improvement.
HSBC Bank Middle East, the Dubai-based unit of Europe’s
biggest bank, reduced interest rates on 25-year mortgages by 76 basis points to
5.49 percent, said James Pearson, the 37-year-old head of assets and
liabilities. The company also lowered its downpayment requirements.
“We are seeing more demand this year. Absolutely,” he said
in an interview. “We’re also seeking out more demand.”
Mortgage financing in Dubai ground to a halt after the
global credit crisis caused prices to plunge by more than 60 percent and forced
the UAE’s two biggest mortgage providers to stop lending for almost two years.
An improving economy has helped end a slide in property values in completed
developments such as Palm Jumeirah, Emirates Hills and The Greens in the last
six months, encouraging banks to increase lending, Pearson said.
Mortgage delinquencies and defaults at the bank are
“improving,” he said. Impairments on all UAE loans fell by half in 2010 from
the year earlier, according to HSBC Middle East. The unit had $24.6bn in loans
and advances to customers in the Middle East and North Africa last year.
The bank increased the amount of money it’s prepared to lend
to house buyers to as much as 80 percent of the property’s value from 70
percent. The loan-to-value ratio for purchasers of apartments is about 70
percent because a “significant” increase in supply in 2011 and 2012 will put
pressure on prices, Pearson said in last week’s interview.
HSBC Middle East also lowered its monthly salary requirement
for borrowers by 25 percent to AED15,000 ($4,080), he said.
Jones Lang LaSalle estimates that 54,000 homes will come
onto the market in Dubai from 2011 to 2015. That’s about 15 percent to 20
percent of the existing supply, according to Jesse Downs, director for Middle
East and North Africa at the property broker.
Mortgage demand has plummeted since the days of Dubai’s
property boom, when speculators frequently bought yet-to-be- built homes and
sold them at a profit before a single brick was laid. These days most loans are
for completed properties in developments with infrastructure and facilities.
Pearson said his company lends mostly to owner-occupiers who
want to refinance existing home loans as well as a small number of investors.
While there is a gradual increase in UAE mortgage lending,
the market is far short of a real recovery, said Tarik El Mejjad a London-based
analyst for Nomura International.
“There is competition
over interest rates and banks are trying to resume mortgage lending, but it’s
not really happening,” he said. “Loans have been contracting for most of the
banks. They are all shopping for the very best customers and there aren’t many
Tamweel, which along with Amlak provided almost 90 percent
of all mortgages in the country by mid-2008, resumed lending in October after a
two-year halt. Dubai Islamic Bank in September increased its stake in Tamweel
to 58.3 percent from 21 percent in a government-led rescue.
Tamweel now offers a 25-year, 80 percent Islamic mortgage at
5.75 percent profit rate to buyers in selected areas. A UAE government
committee is still considering ways to reorganize Amlak.
House prices are likely to decline by an additional 10
percent to 15 percent next year and service fees levied by developers for
maintenance of common areas will continue to prevent a significant recovery, El
“We are back up to a better, more normalized market
position,” HSBC’s Pearson said. “I still think there is more growth to come
because the stabilization needs to play through to give customers more
Economic growth in the UAE will accelerate to 3.3 percent
this year from 3.2 percent in 2010, while Dubai’s economy will grow by 3
percent, according to the International Monetary Fund. Dubai GDP increased by
2.2 percent last year, according to the emirate’s statistics bureau.
“With the UAE returning to projected strong growth in gross
domestic product, we’re looking for the housing market to track or slightly
exceed that,” Pearson said.
House price growth is needed to help restore demand, Pearson
“It doesn’t need to be 50 percent growth,” he said. Two
percent or 3 percent would be enough “to give the sense that it’s a normal
market, where house prices may appreciate with inflation.”
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