Potential mortgage blow for Dubai property market amid reports of mortgage restrictions
Just as it is recovering well from its real estate crash with foreign buyers returning to the market, Dubai has been dealt a potential mortgage blow.
The UAE central bank has decided to limit mortgage loans for foreigners buying residential real estate in the country to 50% of the property’s value, it is reported.
The restriction is contained in a circular issued to commercial banks and it unconfirmed by officials. If true it could put off buyers who cannot come up with enough cash.
It is understood that the central bank’s move is part of an effort to ensure that another bubble in UAE real estate does not develop. Property prices plunged by more than 50% between 2008 and 2011, triggering a corporate debt crisis in Dubai that forced the restructuring of billions of dollars of debt.
This year, residential prices in parts of Dubai began to recover and property developers laid plans for new high end projects. The central bank may want to head off the wild speculation that characterised the last property boom.
However, bankers said they were shocked by the circular, which could hurt confidence in the real estate market’s recovery and hurt the share prices of property developers and banks.
‘They are trying to regulate banks, but are controlling consumers by giving them limited choices. It will lead to less investment by end users,’ a senior executive at a local bank told Reuters.
‘If implemented, this will impact on the real estate sector. After the property market improved, some banks had started lending up to 85% on some projects,’ an Abu Dhabi based analyst said.
‘It’s positive when we look at the financial and lending perspective, but the question is whether this lending cap is practical,’ he added.
A real estate industry source said that in addition to the 50% for foreigners, a 70% limit had been introduced on mortgages for UAE citizens. But it is not clear whether the caps are recommendations or absolutely mandatory, the source added.
In Dubai foreigners are currently allowed to buy property in designated areas. The UAE central bank has previously sought to regulate the lending of commercial banks to reduce risk, only to back off after the banks protested.
