The package looks to ease financial and liquidity requirements for banks to free up cash for lending
The UAE's $70 billion economic stimulus package will make it easier for first-time buyers to get on to the property ladder, according to the CEO of a UAE-headquartered residential, hospitality and commercial property development firm.
The package outlined by the central bank two weeks ago with the aim of boosting the economy and mitigating the impact of Covid-19, looks to ease financial and liquidity requirements for banks to free up cash for lending.
In its most recent move, the central bank also reduced the reserve requirements for demand deposits for UAE banks, by half, from 14 percent to just 7 percent, which will pump an additional AED 61 billion ($17bn) into the financial system, improving liquidity and underpinning the banks’ ability to extend their lending further still.
"The increased liquidity, will also enable banks to offer and compete for new loans and mortgages in the market, as well as supporting their existing customers. It is crucial for the real estate sector that developers and investors have continued access to funding,” said Abdulla bin Sulayem, CEO of Seven Tides.
The package also increases in the loan-to-value (LTV) ratio applicable to mortgages for first-time buyers by up to 5 percent.
Expat buyers can now increase their loan-to-value (LTV) ratio from 75 percent to 80 percent for properties below AED 5 million and from 65 percent to 70 percent for properties above AED 5 million.
For a first time Emirati buyer this would increase the ratio from 80 percent to 85 percent for properties below AED 5 million and from 70 percent to 75 percent for properties above AED 5 million.
For both first-time Emirati and expat buyers this would increase the maximum off-plan LTV from 50 percent to 55 percent. So, on an off-plan property valued at say two million dirhams, a first-time buyer, will only be required to raise a AED 900,000 deposit, which depending on the developer, in many cases can be paid in instalments, instead of one million dirhams previously, a reduction of AED 100,000.
“This makes it easier for first-time buyers to get on to the property ladder,” said bin Sulayem.
In terms of funding, banks will now be allowed to increase their exposure to the real estate sector from 20 percent to 30 percent, with banks being required to hold additional capital if they surpass the 20% exposure threshold. The measures will provide additional liquidity for both real estate developers and investors.
“Add to this attractive borrowing rates and other promotional discounts currently on offer, should help to reinvigorate the real estate sector over the short term,” bin Sulayem added.
Seven Tides has created virtual walk-throughs of the studio and one-bedroom apartments as well as videos of its Seven Palm development on Palm Jumeirah.