Sorouh Real Estate, the second-largest property developer in Abu Dhabi, has secured a mortgage rate of 4.99 per cent from two lenders for its first sales push since the global financial crisis forced down property prices by as much as 50 per cent. The company is releasing 40 apartments from its Sun Tower on Reem Island into the market with low-cost mortgages to encourage first-time buyers to shift from renting to buying a home, said Gurjit Singh, the chief operating officer of Sorouh.
"In the last 18 months, we have been focusing mainly on how our current purchasers remain with us through repricing and restructuring," Mr Singh said. "Now we want to put some units back into the system. We want it to be a catalyst in the market for potential purchasers." Buyers will have access to mortgages from Abu Dhabi Finance (ADF) and Abu Dhabi Commercial Bank that start at 4.99 per cent for the first two years and loan-to-value rates of 85 per cent. The prevailing interest rate on a mortgage in the Emirates is 8.5 per cent.
Mr Singh said the low interest rates would reduce the cost of acquiring a home to the point where it could make more sense to buy than rent. "For the market to recover, we need to bring the cost of acquisition down to a more palatable level," he said. Still, the apartments will sell at a premium to some of those available on the secondary market at Reem Island. A two-bedroom in Sun Tower would cost between Dh1.7 million (US$463,000) and Dh2m, or between Dh1,450 and Dh1,650 per square foot. Many homes on the island have been selling below that price in the past year.
Sorouh and other property developers have experienced profit declines in the past 18 months as sales slowed and prices fell. The company reported a profit of Dh28.1m for the fourth quarter of last year, a decline of almost 40 per cent from Dh46.4m in the same period in 2008. That profit came mainly from sales of 64.3 sq km of land in its Alghadeer project to a company, of which Sorouh is a co-owner.
Sorouh this year will deliver its first towers on Reem Island. The Sun and Sky towers are expected to be handed over in June and residents will start arriving in the following months. Tamouh is scheduled to deliver the Marina Square project around the same time. The opening of the two projects would be a "watershed" moment for Abu Dhabi and the first major expansion on to the islands surrounding the main island. Mr Singh said this year would be shaped largely by the availability of finance for homebuyers, as well as the larger property community.
"The broad property sector needs better access to financing," he said. "Mortgages are a major stimulus for the market, but the next step should be lend to contractors, developers, construction companies, brokers, valuers." He said this was likely to begin with the gradual easing of restrictions at banks on lending to property buyers or builders, and grow to include mezzanine finance lenders and distressed asset funds.
"The market is settling and searching for a final bottom," he said. "2010 will be a very interesting period for these new structures to be formed." Government support is already beginning to trickle down into the property sector through investments in infrastructure and large projects such as the nuclear energy plants, Mr Singh said. ADF, a mortgage provider co-owned by Mubadala Development, which is the strategic investment arm of the Abu Dhabi Government, and other property and financial companies, began offering cheaper mortgages for buyers in the capital last week after it borrowed funds from the Department of Finance.
The Abu Dhabi Government was using ADF to stimulate the property sector, executives said at the time. firstname.lastname@example.org