UAE banks plan to ask for mortgage cap delay

Sources say central bank will be asked to delay, soften proposed new home loan rules
UAE banks plan to ask for mortgage cap delay
Dubai Marina is one of the most popular areas for expats to live in the UAE.
By Reuters
Sun 06 Jan 2013 09:22 PM

Commercial banks in the UAE plan to ask the central bank to delay and soften new rules placing caps on mortgage loans for residential housing, banking industry sources said on Sunday.

A central bank circular last week said mortgage loans for foreign individuals should not exceed 50 percent of the property value for a first purchase of a home, and 40 percent for second and subsequent homes. The caps for UAE citizens were set at 70 percent and 60 percent.

The rules, on which the central bank has not commented publicly, appear to be designed to prevent any repeat of a property market bubble which developed in the mid-2000s, and then burst with disastrous effects on the economy.

But commercial bankers said a fledgling recovery of the property market, which began in Dubai last year, could be slowed by the rules, about which they were not consulted.

The Emirates Banks Association, an industry body, met on Sunday to discuss its response to the circular, the industry sources told Reuters, speaking on condition of anonymity because of the sensitivity of the issue.

"It was agreed that the EBA will write to the central bank requesting a 30-day delay for implementation of the circular," said one source with knowledge of the matter.

In addition, the EBA will by next Sunday prepare a proposal that is likely to ask the central bank to raise the mortgage caps for first-time buyers to 60 percent for foreigners and 80 percent for local citizens, the sources said.

Bankers are generally comfortable with the central bank's caps on mortgages for second and subsequent homes, a second source said.

Foreigners account for about 80 percent of the UAE's population of roughly 8 million and are major buyers of real estate in designated areas where they are permitted to own property.

The central bank's announcement of its rules initially pushed down the share prices of real estate developers. But the effect was short-lived, suggesting investors do not think the regulations will end the property market's rebound - and also perhaps that they believe the rules may be watered down.

Shares in leading Dubai property developer Emaar Properties initially fell 1.6 percent but are now 5.2 percent higher than they were before the announcement.

The central bank has previously tried to regulate the lending of commercial banks, only to back off after the banks protested. It announced last April that from September 30, banks would have to limit their exposure to state-linked entities; some big banks were above the limits when the deadline passed, and last month the central bank said it was suspending the rules while it consulted banks.

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