Amlak, the country's largest home lender, is suspending new loan applications until further notice as it carries out a full review of its portfolio. The implications for the economy are significant. This is a further sign that the credit crunch has hit the country. As credit dries up, analysts say home prices may soften further, leading to increased job cuts and a further slowdown in economic growth.
"We are reviewing our existing credit policy to ensure optimum servicing of existing and prospective accounts," said Arif Alharmi, chief executive of Amlak Finance. "Our temporary measures of not sourcing new applications will bring us up to the level we have outlined in our management strategy." There are fears that other lenders could follow suit. "This is bad news for the market, very bad news," said Chris Dommett, chief executive of John Charcol Dubai, a mortgage advisory firm. "It's almost certainly down to liquidity, I think they don't have funds to lend. It sends a very negative message to the market at a time when they need some sort of positive news."
Property prices fell last month by 4 per cent in Dubai and 5 per cent in Abu Dhabi, according to data from HSBC Bank. With a squeeze on credit, both existing buyers and those hoping to acquire new loans may be unable to proceed with their purchases. Property developers are already feeling the pinch and laying off staff, with 200 jobs cut at Damac alone last week. Further job cuts now look likely. Amlak is in merger talks with Tamweel, the country's second largest home lender. The two companies say that a deal may be concluded by the beginning of next year, assuming that there are no regulatory hurdles. "Tamweel and Amlak have both been instrumental in supplying a financing need to the market," said Salwa Hammami, head of research at Arquam Capital, a Dubai-based investment bank. "But there are no buyers at all. There is no demand and no transactions. The market is stagnant as far as buying and everybody wants to get rid of their apartments."
It is understood that Government authorities are discussing measures to help both borrowers and beleaguered property companies. Banks have been reluctant to pass on the Dh120 billion (US$32.7bn) that has been made available in emergency lending by the Ministry of Finance over the past four weeks. Banks have been tightening their lending criteria and demanding higher and restrictive downpayments, sometimes as high as 50 per cent of the purchase price. They are also reducing consumer lending, including car loans. "The market needs to mature into an end-user market," said Ms Hammami.