Abu Dhabi steps in to cut cost of home loans
Bradley Hope
- Last Updated: March 01. 2010 10:36PM UAE / March 1. 2010 6:36PM GMT
A view from inside the Sun Tower overlooking Reem Island. Sammy Dallal / The National
ABU DHABI // The Government has stepped in to reduce the cost of home loans in the capital. Buyers can now obtain mortgages at 5.75 per cent interest, compared with current rates of more than 8 per cent, a saving of Dh2,450 (US$667) a month on a typical Dh2 million loan.
Abu Dhabi Finance, a mortgage provider part-owned by the Government, revealed yesterday that it had received funds from the Department of Finance with which it will cut the cost of borrowing to 1 per cent below the best available.
“Abu Dhabi Finance is one of the tools that the Government is using to stimulate the real estate market,” said Ali Eid al Mehairi, the company’s chairman.
The move comes amid a property downturn in which prices have fallen by 50 per cent in parts of the capital. The two largest developers, Aldar Properties and Sorouh Real Estate, have reported few sales in the past year and the two largest home finance providers, Amlak Finance and Tamweel, stopped issuing new loans in November 2008.
Mr al Mehairi said Abu Dhabi Finance received unspecified funds from the Department of Finance three weeks ago at “commercial terms”, without providing details. Together with bank loans the company has obtained, it was able to reduce interest rates to between 5.75 per cent and 8.5 per cent. The best rate available from other providers is about 6.5 per cent, said Chris Dommett, the chief executive of the mortgage advisory company John Charcol in Dubai.
“A lot of people in Abu Dhabi have been comparing the cost of renting with the cost of buying,” Mr Dommett said. “Lenders are looking at how to lower the rate to where it becomes cheaper to buy. This will encourage more people to go and buy properties.”
Only the most credit-worthy applicants, around 20 per cent, will qualify for the 5.75 per cent rate at Abu Dhabi Finance.
The company launched in late 2008 with a stated focus of improving mortgage customer service, but as the economic crisis deepened the Government has taken a keener interest in it as an instrument to increase property sales. The chief executive, Philip Ward, said in August that it provided between 20 and 25 per cent of mortgages issued to home buyers in Abu Dhabi.
Damian Hitchen, a director at Emirates Conveyancing in Dubai, said the finance house had a reputation for being competitive. “They have very much concentrated on the Abu Dhabi marketplace at this moment, but my understanding is that they have plans to expand.”
bhope@thenational.ae
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Added: 03/08/10 10:42:00 AM
To rent a one Bed room apartment in Abu Dhabi, which is worth living cost me AED 100,000 per annum.
The rent is my cost of living , which I'll never recover. with this good rate at least I'll have a possibility of recovering my cost , if not rake in huge profit.
This is the ONLY place in the world, where your EMI can be paid through the rent.
Someone has pointed out India as an example, with 85% loan at the present value, my rental return does not even cover 35% of EMI. It is a liablity not an Investment.
Devoid of many other option this is best of the pick. May be a short risk but a long term gain.
my opinion, Dubai
Added: 03/05/10 09:55:00 AM
It's just another attempt by the Government to stimulate the greedy and ill-regulated property industry. How about lowering the already inflated mortgage rates with existing banks for customers who had the nerve to invest in the real estate in the first place. This place is just governed on a daily basis with no thought whatsoever. I'm glad to send every piece of money I earn back to my home country.
Yusef Mohammad, Abu Dhabi
Added: 03/03/10 06:06:00 AM
Mr. Desmoineaux is on the right track when he says that the market fundamentals are simply not there. It never was and is not and I doubt if it ever will be. The focus has always been to make this place the costliest and comparable with London or Newyork or Tokyo without the appropriate demographic and economic indices and necessary legal support framework in place. Skewed fundamentals and skewed logic resulted in a skewed economy.
When hardly 20% of the expats get AED 10,000- and above any EMI about AED 2500- per month will render the economy open to bubble pricks. With abundant supply of both residential and commercial space and despite thousands more in various stages of completion there is no way any resident can be coaxed into investing in property.
Just look at the way Tamweel and other property developers and have treated investors - like as if they were criminals.
One must be a nut case to invest in property here with no guarantee of salaries, jobs and possibility of stay. The only thing that is guaranteed is high cost of living.
Dr KB Vijayakumar PhD, Dubai
Added: 03/02/10 03:00:00 PM
This shows the commitment of the Government towards the real estate sector.Everyone has been discussing these for long.When THE NATIONAL took up the matter, it is done!When the morgages/refinancing rates are between 3 to 4% in US, banks here have been killing the real estate sector by raising the interests to 8-9%.
The rate of 5.75% shall however be kept constant until a satisfactory [& stable]level of buying is achieved.
The next thing to do it is to push other big players in the market to follow the same.For constructed villas 85% of 2007values [Dhs/sq.ft.--200 for well developed land in a good locality 300for building construction 100 for infrastructure 50 for community landscape 300developers expenses& profit=Total AED:950per sq.ft]shall be given as loan, for the next 2 to 3 years;thereafter, it shall be between 65 to 85% of market value based on Central bank's market study of risks/next bubble formation/speculative activity.Now jobs are to be created to increase rental demand, so that confidence level of buyers rises enough to make the "buying" decision.
Radha Krishna, Dubai
Added: 03/02/10 09:44:00 AM
Prospective clients may have a few queries:-
1. "Only the most credit-worthy applicants, around 20 per cent, will qualify for the 5.75 per cent rate at Abu Dhabi Finance." what does this mean?
2. Can customers transfer existing mortgages from other banks to AD Finance?
3. I have a property in Dubai, can I still opt for a mortgage with AD Finance?
Ravikiran MA, Abu Dhabi
Added: 03/01/10 11:24:00 PM
You can't force people to buy!
The prices are still declining, and with all the additional supply in the pipe line, it is likely they will carry on declining.
If the market fundamentals are not there, for an investor with any nouse, this is merely tinkering with the deckchairs...
Ford Desmoineaux, Abu Dhabi