Whatever you might think of the modus operandi of the UAE Central Bank in the recent fuss over mortgages, you have to give the regulator credit for effectiveness.
The imposition of a 50 per cent cap on first-time expatriate house buyers, decreed on New Year's Eve after no consultation with mortgage providers, seemed draconian and arbitrary.
By making its move, however, the Central Bank has signalled that it regards property inflation as a serious threat to the economic recovery of the UAE, and of Dubai in particular; and has shown it will take radical action to counter that threat.
I think the Central Bank is right, although it was somewhat heavy-handed in announcing the new measures just as most of us were preparing to watch the fireworks.
A 50 per cent cap looked like taking a sledgehammer to crack a nut, and a period of consultation and reflection is required, by the Central Bank and lenders before the new regulations are set on stone.
But at the core of the issue, the Central Bank has acted responsibly and decisively to prevent a return to the days of 2006-2008, which paved the way for Dubai's own financial crisis in 2009.
Those days, when off-plan apartments were churned for a big profit in a matter of minutes, and when the best villas were inflating at 10 per cent per week, stretched the skin of the property balloon so tight that the burst was inevitable and ear-shattering.
It cannot be overstated - the Dubai property collapse of 2009-2011 was arguably the most damaging economic event in the emirate's 40-year history, and any responsible regulator should make the utmost effort to ensure it is not repeated.
What prompted the Central Bank to hurry into action on December 31 is not known, but perhaps officials got a sneak preview of a report by the analysts at Global Property Guide.
Below the banner "Dubai ranked world's strongest housing market", there were statistics that would truly alarm the conservative-minded regulators: Dubai's residential property index jumped 13.5 per cent last year, much faster than any other city in the world.
The increase was welcome after 2011's decline of 1.8 per cent in residential property values, but for Dubai to be so out of kilter with the rest of the world must have set alarms bells ringing at the Central Bank.
Or maybe the Central Bank saw the same statistics that last week led Jones Lang LaSalle to conclude that the recovery in property prices would "remain challenged by current oversupply and high vacancy levels". In other words, the big gains of last year were fragile and vulnerable, and any number of factors could set off another downward spiral.
In this climate, the Central Bank's concern is understandable, and it has sent out the clearest sign it does not want Dubai's economic renaissance dashed by another property crash.
Most of the mortgage providers I have spoken to in the past week were irritated that the Central Bank had not consulted them before coming out with the regulations. They also believed a 50 per cent loan to value ration was a little on the high side.
But there was also consensus that the old days could not be allowed to return. Most have learnt the lessons of the crash, and these days are much more conservative with all types of lending, especially mortgages.
While the previous guidelines allowed up to 80 per cent loan to value in principle, very few were willing to advance so much to buyers. Some had an internal limit of as low as 60 per cent; others were at the 70 per cent level.
The banks were already practicing their own anti-bubble measures, and quite right too.
There is some fine-tuning to do. Bankers who have seen the new rules say there is still time to get the details right with regard to the Central Bank's new limits. Perhaps a loan to value of 60 to 70 per cent could be seen as the best outcome.
The estate agents will complain, and some home seekers will have to wait a bit longer and save harder. But it is in Dubai's real long-term interest to have a stable, healthy, and above all sustainable property market.
[ fkane@thenational.ae ]
