By Shane McGinley
Central bank announced plans in December 2012 to limit mortgages to 50 percent for first-time foreign buyers
The United Arab
Emirates central bank is expected to announce limits on banks' lending for
residential mortgages by the end of this year, Abdulaziz Al Ghurair, head of
the national banking industry association and chief executive of Mashreq Bank,
UAE banking officials
in December 2012 announced plans to limit mortgages to 50 percent for
first-time foreign buyers and 70 percent for locals, while levels for
subsequent homes would be set at 40 percent and 60 percent.
The measure aimed to
prevent a repeat of the 2008 real estate crash, which saw prices in Dubai and
Abu Dhabi slump around 50 percent from their peak. At present, banks in the UAE
are allowed to lend 100 percent of a property's value to home buyers.
Following an outcry
by commercial banks, officials agreed to soften the cap and in March agreed, in
principle, the cap should be set at 75 percent of the value of a property for
foreigners who are first-time buyers and 80 percent for local citizens, sources
Ghurair said on
Tuesday that under the revised rules, expatriates could not finance third or
subsequent homes with mortgages; they would have to pay cash.
"I expect it
before the end of this year to be announced. It was discussed and the views of
the association were taken. There is a general agreement on the levels,"
he told Reuters.
At a meeting of the
board of directors of the Central Bank in July an update on the drafting of the
legislation was ordered. “The board of directors of Central Bank of the UAE
held its 4th meeting for the year 2013 during which it took note of the latest
developments regarding draft of the Mortgage Loans Regulation, which had
previously been referred to the concerned agencies for study and feedback, and
instructed follow-up with the said agencies,” the WAM news agency reported.
for about 80 percent of the UAE's population of roughly 8m and are major buyers
of real estate in designated areas where they are permitted to own property.
Ghurair this week
also revealed the central bank is expected to announce rules restricting the
amount of exposure which banks can have to the debt of state-linked entities
within one or two months.
"It is already
finalised by the central bank. Now the central bank just has to announce it - I
think in the next month, two months max. It's already passed the board,"
"We will have to
wait and see what is the final decision. I'm sure some banks will seek time.
There will be some slight changes but the good news is that other loans are
growing so the overall proportion of GRE loans is shrinking."
He added, "The
central bank said, 'This is the guidelines and we're willing to sit down with
each bank and discuss with them how much time we're willing to give and what
they need to adjust.' If I tell you to lose weight - 10kgs now - you can't. You
need time - it can't happen overnight."
The central bank
tried to introduce the rules last year as part of a drive to reduce risks and
prevent any recurrence of Dubai's 2009-2010 corporate debt crisis.
But it suspended the
rules after banks complained the regulations would slow growth of their
business and could cause them losses if they were forced to unload some of
their state-linked loans quickly.
government-owned enterprises by some of the UAE's biggest banks is currently
well above the ceilings envisaged by the central bank last year. Sudden
reductions could hurt not only the banks but the Dubai government, which has
increasingly relied on loans from local banks for funding since the crisis.
In a research note
last week, Bank of America Merrill Lynch calculated that the UAE banking
sector's exposure to the government and non-financial public enterprises as a
percentage of bank capital was at 104 percent, the highest ratio since the late
Ghurair did not give
details of the upcoming rules. Bank of America Merrill Lynch said UAE banks had
proposed that bonds and sukuk be excluded from the limits, which would reduce
the total amount of exposure to be regulated by about a fifth.
* With Reuters
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Is this not back to front?
Surely end users who actually buy the property to own it are not the problem? These people are not the speculators which raised the bubble last time.
I think people must understand that this rule will not have a lot of impact as believe it or not but there is a huge availability of cash buyers in the market.
People who are not end users will come and go into the market due to the fact that they can pay upfront.
They may either rent out the unit or sell it once there is a price change. There is very little that can be done in such cases but personally I believe that this is paying off people who invested long time ago and were termed " Lucky " by people who simply had the same opportunity but did not took advantage of it.
In my home country the transfer fees vary according to the time of the property owned by the seller. The less the time owned the higher the transfer fees. The same system can cool down the market, specifically for cash buyers and less for end-users.