By Courtney Trenwith
Emirates Banks Association chairman says recovery has helped to limit UAE lenders' losses
UAE property values have returned to their pre-crisis levels and in many cases have climbed higher, Emirates Banks Association (EBA) chairman Abdul Aziz Al Ghurair said.
Real estate prices started to rebound last year after Dubai suffered one of the world’s worst property market crashes following the 2008-09 credit crisis.
Al Ghurair said the recovery had helped to limit banks’ losses to an average 0.15 to 0.20 percent of the industry’s total home loan book. “That’s healthy,” he said. “Mortgage lending has been low risk so far.
“It went up and down and during the crisis time value of the property went under the value of the loan but now everybody has the value of the property or even higher... so it’s looking good.”
Home loans in the UAE make up about AED60bn (US$16.3m) of the AED500bn total retail market. “So it’s significant but it’s not really huge,” Al Ghurair said. “It’s a good risk for the banks.”
There has been concern that the UAE Central Bank’s intention to cap the loan-to-value ratio of a mortgage would impact on buyers’ ability to purchase property, limiting banks’ potential to grow in the mortgage sector.
The Central Bank initially said it would set the cap at 50 percent for expats and 75 percent for nationals but is now in negotiations with the EBA, which represents 51 banks.
The EBA said on Sunday it would recommend setting the cap for the first property at 75 percent for expats and 80 percent for nationals.
Al Ghurair said he did not expect the policy to negatively impact the property market or banks’ total mortgage book.
He said some regulation in light of the property market crash was needed. “It’s important that people should own their properties and we want to facilitate the ownership of property for everybody here in the country,” he said. “But some regulation, I think, is important.
“We don’t want the Central Bank to right a uniform mortgage policy and detail a 50-page policy [telling] the banks ‘here’s what you need to do’. Some freedom is important and some guidelines also [are] important.
“So far things [have gone] well... but we don’t know what’s going to happen next time so we don’t want there to be surprises.”
Al Ghurair said previously banks lent up to 100 percent of the property value on the expectation that the real estate value would rise. While it did for a period of time, inevitably there was a crash.
“Most of the banks took an aggressive view that it would go up and it did, they did fine,” he said. “[But] we want to protect the industry from such an aggressive view [again].”
Let me get this right...
The pre-crisis levels, which everyone agreed where overinflated, are now back and, in some cases even higher, and its a good thing?
And people wonder why the banking system in the UAE is in the state that it is....