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Home arrow News arrow Middle East arrow UAE mortgage limits on hold for up to six months, officials confirm

UAE mortgage limits on hold for up to six months, officials confirm

Tuesday, 05 February 2013
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Proposals to limit mortgages for foreign buyers in the United Arab Emirates have been put on hold while further discussions get underway.

At the end of last year the UAE Central Bank issued a circular announcing its intention to limit mortgage loans for foreigners to a maximum of 50% of the property's value and to cap loans at 70% for UAE citizens.

Under the proposals loans would have also been capped at 40% for foreign buyers of a second home and at 60% for citizens.
But there was so much criticism of the plan that it wasn’t actually put in place last month and now the Bank's Governor has confirmed that the proposed caps are on hold as a consultation with lenders is now underway.

The bank says it wants to put curbs in place to reduce the real estate market over heating as it did in 2008. Since then some markets have lost up to 60% of their value and there have been the first repossessions and court cases over loan defaults.
It may now be six to nine months before the outcome of the consultation is known and a final decision made.

The Emirati Banks Association (EBA) is pushing for the caps to be relaxed, suggesting expats should be able to borrow up to 75% and domestic buyers 80%.

The EBA is also considering proposing a limit on the total value of an individual mortgage to AED25 million, although this would affect only 2% of the UAE mortgage market.

Other rules and regulations are also up for discussion including the length of mortgages and there are suggestions these may be limited to 25 years.
 
With cash buyers responsible for around 70% of purchases in the Emirate some analysts question both how effective the move will be in controlling the resurgent market and whether in fact the Bank is targeting the wrong type of purchaser.

According to Helen Tatham, Knight Frank’s director of residential in Dubai, foreigner buyers will always be interested in the emirate because it is a strategic location between east and west and a hub for international business. She expects the real estate market to continue to strengthen this year.

Richard Paul, residential valuations at Cluttons in Dubai, said that a strong rebound in property prices last year has led to concerns that it could all go badly wrong again as it did in 2008.

‘After witnessing the collapse of the Dubai property market in 2008/2009, it is clear that the UAE government is reluctant to relive the bubble to burst property effect again. By reducing LTV levels for expats and nationals, the Central Bank is looking to regain some control from the hands of the local and international lenders, who to date, have battled it out for market share offering more attractive terms, thus potentially boosting property prices beyond sustainable levels,’ he explained.

But he says that the emirate needs to take care not to deter first time buyers. ‘First time buyers looking to invest and settle in the UAE are the type of investment that any property market needs. Increasing LTV ratios to unrealistic and unreachable levels will ultimately convince first time buyers to buy elsewhere, perhaps in their domestic markets,’ said Paul.

‘Despite the expected retraction from initial legislation, those steps taken by the Central Bank are sensible. The Central Bank's aggressive directives will go someway to discourage sentiment driven investors, who helped grow the bubble of 2008. Discouraging investors who look to make fast profits by flipping property is a good move, but we cannot loose the backbone of our property market which is the first time buyers,’ he added.


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