Tamweel PJSC, the UAE mortgage company rescued by Dubai Islamic Bank in September, expects to book AED100m ($27.2m) of new home loans a month when it revives lending.
Tamweel was giving out “between AED500m to AED700m worth of mortgages every month” during the property boom year of 2008, chief executive officer Wasim Saifi, said in an interview in Dubai on Tuesday. “If we do 100 million a month now, it would be a respectable number in the current market,” where home prices have fallen by half in Dubai, he said.
Tamweel and rival Amlak Finance PJSC, once the UAE’s two biggest mortgage companies, suspended lending after the seizure of global credit markets shut their access to funding. Dubai Islamic Bank PJSC, the UAE’s biggest bank that complies with Muslim banking rules, last month raised its stake in Tamweel to 57 percent from 21 percent to help boost lending.
Dubai, the second biggest of seven states that make up the UAE, has faced a debt crisis since state-owned Dubai World said in November it would restructure $24.9bn of loans. Tamweel and Amlak’s shares have been suspended since November 2008 as the federal government worked on a rescue plan for them.
“Dubai today is phenomenal in terms of value for money for real estate -- you compare it to anywhere,” Saifi said. If you consider home prices “vis-à-vis replacement cost, I don’t think there is much room for further correction,” he said.
Dubai, a trade and financial-services hub in the Gulf Arab region, allowed foreigners to buy homes in some parts of the emirate in 2002, creating a building boom. Demand evaporated in 2008 after the credit crisis dried up mortgage lending, sparking a more than 50 percent plunge in home prices.
Demand for homes from “end-users is still there, although it is selective and the numbers are not huge,” Saifi said. Tamweel’s re-entry into the market will spur other banks to offer mortgages and an expected improvement in the economy over the next 18 months will boost home demand further, he said.
Tamweel has begun talks with Dubai Islamic Bank on its business plan and on the terms and amount of loan funds it will receive from the bank, Saifi said. Home mortgages will probably be reintroduced in three to four weeks for as much as 75 percent to 80 percent of the value of the property, down from about 90 percent to 95 percent during the property boom years, Saifi said. Interest rates on Tamweel’s mortgages will be between 6.5 percent and 8 percent, the current market range, he said.
Property prices in Dubai are unlikely to recover soon as 41,000 new homes are expected to be completed by the end of this year, adding to a glut of homes, according to estimates by property consultants Colliers International in May.
“With the supply pressure, there could be another 5 to 10 percent decline in home prices,” Saifi said. “Otherwise prices would stabilize at current levels. My guess is that the industry is originating AED500 million to AED600 million of mortgages every month, a small fraction of what it was doing earlier.” (Bloomberg)For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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