Liquidity and lending restrictions affecting Dubai property market
Confusion and even panic is beginning to be detected in Dubai's property market as concerns about liquidity, lack of lending and credit deterioration spread.
'In our view, there is legitimate concern the Dubai market is enduring a liquidity squeeze and witnessing macro-economic and credit deterioration in most of the countries from where its expat buyers hail,' says a real estate report from Citi Investment Research.
'Liquidity among Gulf banks has dried up, bringing into focus the bias to real estate and construction of local bank loan portfolios,' the report adds.
The UAE central bank recently created a pool of Dh50 billion to provide much-needed liquidity to the desperately dry banks.
However, the banks are reluctant to disperse credit until they see evidence of sovereign wealth being reinvested in to the local economy, the report points out.
The current liquidity squeeze is due in part to domestic banks having a larger loan book than deposit base and because foreign banks are keen to hang onto their capital. The squeeze is restricting mortgage and lending facilities that were once easy to obtain.
First time buyers could be forced out of the UAE property market. 'It is going to affect people that are trying to get a foot on the ladder,' said Jean Luc Desbois, managing director of Dubai-based mortgage consultancy firm Home Matters.
'Dubai is attracting a number of younger people and with the rents continuing to increase, the opportunities for them to buy are going to be reduced because the amount of deposit they now need to find is higher,' he added.
Tamweel and Amlak, the biggest Islamic mortgage lenders in the UAE, have both dropped their loan to value ratio in the last two weeks. Tamweel has lowered the maximum amount it is willing to lend against the purchase price of a property from 90 to 75% while rival Amlak has dropped its loan to value ratio from 90 to 65%.
Other lenders are lowering mortgage rates as credit tightens and home price growth slows. HSBC Middle East lowered its loan to value ratio from 80 to 70%. Lloyds TSB, which currently lends a maximum of 80% against villas and 70% against apartments, has said it is reviewing its loan to value ratio in line with its international mortgage offerings.
Speculative buyers, blamed for driving up the cost of housing across the emirates, could also be put off investing into the real estate sector following the changes.
'It will reduce the number of speculative buyers and that would not be a bad thing. It would help ensure the real estate market remains fundamentally sound for the long term,' said Mohamed Jaber, an analyst for the GCC region at US bank Morgan Stanley.