Abu Dhabi // Five of Abu Dhabi's largest companies will launch a home finance company on Wednesday that will fill the void left by the implosion of credit at home and abroad. Abu Dhabi Finance, as the new lender is to be known, is a joint venture between Mubadala Development, Abu Dhabi Commercial Bank, Aldar Properties, Sorouh Real Estate and the Tourism Development and Investment Company.
With Dh500 million (US$136.1m) in paid up capital, it will start by offering mortgages to buyers of properties from the three developers - which account for two thirds of Abu Dhabi's projects - and then expand to the rest of Abu Dhabi and the nation. "We did a survey and found that 90 per cent of people were unhappy with their mortgage experience" in the UAE, said Ali Eid al Mehairi, the chairman of the new company and a development director at Mubadala. "In the last year, we have focused on building up customer service."
At a time when home finance companies and banks are cutting their lending terms and making it difficult to buy a home, the new company will begin offering mortgages with loan-to-value ratios as high as 85 per cent. "This is very good news for the consumer," said Chris Green, the managing director of Investment Boutique in Dubai. "I think this could be a very big boost in confidence for the man on the street who was thinking about buying despite the negative news coming out."
The process to create Abu Dhabi Finance began a year ago, when Mubadala decided the emirate needed a better mortgage provider, but in recent weeks the creation of a well-funded mortgage provider has become especially relevant. Banks have either stopped issuing mortgages or cut their loan-to-value ratios to as low as 50 per cent in some cases. Amlak Finance, the largest home finance provider in the Emirates, said last week it had stopped issuing loans while it reviewed its credit policy.
Abu Dhabi Finance hopes to take up some of the excess demand in the market for reasonable mortgages. Its products will more closely resemble those being offered earlier this summer when the property market was booming. The duration of the mortgages offered will range from 3 to 30 years. The borrower must be under the age of 70 when the mortgage ends. They will have a debt-to-service ratio of 55 per cent. The interest rate on the loans, between 8.5 per cent and 9 per cent, was about as expensive as others in the market, mortgage brokers said.
Shafqat Malik, the chief financial officer of Aldar Properties, said the new company was important because it was geared towards people looking to buy homes to live in, which is the fundamental driver of the property economy. "It is going to help not only Aldar but all the developers here, because this vehicle is geared toward the specific requirements of the end-user," he said. "You are providing much more choice to the end-user to be able to go and find the financing to buy a home."
Together with the newly announced Emirates Development Bank, it would also bring some liquidity back to the suffering property market, analysts said. The Government announced this week that Emirates Development Bank would be formed by the merger of Real Estate Bank, Emirates Industrial Bank, Amlak and Tamweel - making it the largest provider of home loans in the country and a facility that could directly help distressed property developers.
Mohammed Ali Alabbar, a member of the Dubai Executive Council and chairman of Emaar Properties, said the merged bank would "facilitate lending and move liquidity into sectors needed, especially in real estate". Mr Mehairi said Abu Dhabi Finance had its financing secured and would be able to get through any "rough situations that come to the market". The competitive advantage for its 70-person operation - based in the Abu Dhabi Commercial Bank building on Zayed the First Street - would be customer service, he said.
"Customer ambassadors" would monitor the mortgage experience and sales staff would be rewarded not just on mortgage execution but the quality of the process, the company said. Advisers will use a fleet of branded cars to travel to wherever customers need them. "Whether there is a correction in the real estate market or not, people will still need mortgage products here," Mr Mehairi said. "We feel confident the market is strong and people are going to buy properties."