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Thu 21 Jan 2010 06:48 AM

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Up to 40% of approved Dubai home loans snubbed

EXCLUSIVE: Financial services chief says poor sentiment causing buyers to rethink plans.

The number of buyers in Dubai who have been pre-approved by lenders for mortgages and subsequently decided to abandon purchasing a property is as high as 40 percent, a Dubai-based finance company has told Arabian Business.

Earlier this week, Colliers International’s Dubai House Price Index found that quarterly house prices in the emirate rose by one percent in the fourth quarter of 2009 but fell by 42 percent year-on-year since compared to Q4 2008.

As part of the report, Colliers also found that mortgage transaction in Q4 declined by 15 percent.

“Anecdotally we have learnt that the announcement of the Dubai World debt restructuring has influenced purchaser sentiment,” Ian Albert, regional director at Colliers International said at the time.

Albert told Arabian Business that after the Dubai World announcement on November 25 “anecdotally we heard from banks that people who had been pre-approved for mortgages to buy then decided not to. However, that is only anecdotally and is not supported by data.”

A senior consultant from Independent Finance, which advises Dubai buyers on their mortgage and finance needs, said that this was still the case.

He added that the number of buyers who gain pre-approval on loans and then decide to abandon buying a property was currently as high as 40 percent.

“It is quite a lot of our clients who get pre-approvals who do not go ahead with it,” the consultant said, putting the figure as high as around 40 percent.

The main reason for the cancellation of deals, he said, was that documents often take two to three months to come from developers and the buyers then look at the market and change their mind about pursuing the deal.

“They have seen the prices drop and see a change in the market and decide no.”

Lending is often available for those who qualify for it but the buyer confidence is not there to take advantage of it, he added.

“From the banks' perspective they are not trying to chase clients away they are actually pushing us quite hard to get them new clients.

“Finance is out there. There are a number of banks not lending but those who are lending are actually quite aggressive. Their terms are tighter than they were before but they are still lending actively and offering the facilities,” added the consultant.

The comments come on the back of official data from the Dubai Land Department that showed that the Dubai mortgage market slumped by 73 percent last year.

Earlier this week, Arabian Business reported that Palm Jumeirah had also seen the first repossession by a bank when an apartment was sold for 35 percent below its market value.

Dan 9 years ago

Emirates NBD appears presently to have a restriction on lending to anyone employed in Construction. They call me to offer loans as I am a good customer but then the restriction comes up at documentation stage. They mentioned that perhaps this restriction may be lifted in this New Year sometime. I would purchase a home in Dubai if a mortgage was available.

Matt 9 years ago

Just to be clear, the last paragraph of this article is incorrect. The property at the Palm did NOT sell for 35% less than market value. It sold FOR the market value. The market value - by definition - is what the market will pay for a property. What the paragraph should state is that it sold for 35% less than other vendors were TRYING (unsuccessfully) to sell their properties.

Saiyed 9 years ago

Folks here in US BoFA has posted a Q4 loss of USD 5.2 billion since it has returned the TARP funds worth USD 25 billion. So the US economy is still reeling from financial crises. If BoFA fails then it could be a replica of Lehman Brothers. So i guess we are in for another bumpy ride for 2010.

The Consultant 9 years ago

Perhaps another factor is that people are put off borrowing money to buy a property when they discover what interest/profit rate they would be charged by the bank. Borrower confidence is further eroded when banks attempt to renegage on interest rates that are pegged to Libor - if you can't trust a bank to honour its own contracts then who can you trust? Rational investors will start to borrow money to buy property again when they think they will be able to at least break even or sell it for a modest profit over, say, a five year timeframe, and in the meantime will pay less in interest (plus community charges, maintenance etc) than the rental value of the property. Unless mortgage interest rates drop to realistic levels relative to IBOR we will never get to that position and property investors and banks will remain locked in a death spiral, with ever-increasing levels of negative equity and foreclosures.

His Excellency Dr Paul 9 years ago

Matt, I share the sentiment that many advertised prices are too high, and that they don't reflect the true market rate. However, I do not believe that the way the property in question on the Palm was sold reflects the true market rate either. It was advertised at a fixed price which was 35% below the general rate other properties were being advertised. We are told it sold in hours, but given the lack of transparency, and the curious decision not to hold an auction, one can only speculate on who actually got hold of it and (if there was interest from multiple buyers) who decided they got it, and indeed whether the sale was already agreed beforehand with the advert going in simply to give the impression of it being a publicly accessible sale. The true market rate at present is probably somewhere between that price and the widely advertised prices of similar properties (though I expect prices will continue to fall). Regarding the effect of the DW debt issues mentioned, rental values advertised certainly seemed to step down around 10% so far since early December, whereas they had seemed fairly stable from August to November. It does suggest that it has dented confidence. You'd have to be very trusting to take present assurances that the problems are over as accurate. I've lost count of the number of times the bottom has been called.

Baiju Jaffar 9 years ago

I completely agree with Matt, the price which the bank acquired by repossession is the current ''Market Price'', the statment stating ..the current price is 35% less means, you are comparing to a ballonned price.

Dubya 9 years ago

The main reason for this is valuations. You wouldnt apply for the mortgage unless you knew the charges. I pulled out a month ago of a purchase from Sorouh direct - as the valuation was 20% below the selling price. I didn't want to fund the additional equity so had no choice. the valuers are covering themselves by undervaluing - even if the bank LTV is 90% the chances of getting anything above 70% of what you are paying is shot as the valuations are not realistic. How can the valuer value an apartment i am prepared to pay 3m for at 2.4 m. the developer wont sell it for anything else, and i am willing to pay 3m for it. How come that it not market value?

Chipo 9 years ago

Is it not true that repossessed properties are sold to recoup outstanding debt and not to make a profit? Therefore market price did not apply, purely the outstanding debt on the property.

Dubya 9 years ago

no - its not true. the bank should owe a duty to the owner to sell at true value and if there is a balance left over it should go to the owner. people can be cash poor but equity rich

Hans J. Weber 9 years ago

when AB states "Earlier this week, Arabian Business reported that Palm Jumeirah had also seen the first repossession by a bank when an apartment was sold for 35 percent below its market value" you need to double-check on your economic base knowledge. The price paid for this unit was THE MARKET PRICE instead of the manipulated prices of the past. Would the seller be able achieving a higher price - he would have definately done so.