x Abu Dhabi, UAEWednesday 17 January 2018

UAE loans expected to multiply in spite of mortgage cap plan

Financial literacy: Expectations that the Central Bank will impose a mortgage cap this year are unlikely to dint a surge in the number of new home loans, property agents say.

Expectations that the Central Bank will impose a mortgage cap this year are unlikely to dent a surge in the number of new home loans, according to property agents.

Estate agents in Dubai and Abu Dhabi are reporting an increase in the number of residents taking out mortgages, as the property market continues to recover despite expectations that the Central Bank is may limit borrowing.

According to the property valuer Cluttons, the number of mortgage valuations it has been asked to carry out over the past 12 months has increased by 40 per cent compared with the same period the previous year.

However, the agent added that the level still remains about 20 per cent lower than it was at the peak of the market.

The cap, rumoured to be announced this month, is expected to limit lending to foreign buyers at 80 per cent of purchase price, and at 75 per cent for Emiratis.

An original cap proposal, limiting loans to first-time foreign buyers to 50 per cent of the property's value and 70 per cent for locals, was announced in December, prompting an outcry from commercial banks and precipitating news of a temporary slowdown in the Dubai property market.

"We are carrying out a large amount of mortgage valuations at the moment for different banks all over Dubai and Abu Dhabi, and we are very aware that our counterparts are doing similar business," said Richard Paul, a director for UAE residential valuations in Cluttons' Dubai office. "This is a trend we expect to continue."

"Some of this is down to the market recovering and some of it is down to people looking to escape high rent increases," Mr Paul added. "The expected loan cap announcement could perhaps subdue the market a little, but this time around it won't be as much of a shock."

The figures confirm Dubai Land Department data published in July, which reported that buyers using mortgages bought 6,050 properties worth a total Dh51.3 billion - roughly double the number of purchases recorded last year and a two thirds increase in the total value.

According to the Dubai-based property agent Prestige Real Estate, the number of clients looking to buy rather than rent has increased 20 per cent during the past year, as residents return to the housing market as a way of avoiding soaring rents.

"We are seeing a lot of western expatriates coming to us because they have had enough of renting," said Mario Volpi, the managing director of Prestige. "It's not just that rents are rising quickly, it's also that they are sick of having to fight to renegotiate their rents with their landlords each year."

"This time we don't expect the same sort of effect on the market," Mr Volpi said.

"The lending levels are likely to be much more sensible and the market expects the move, so it will be less of a shock."

Thousands of buyers took out mortgages during the Dubai property boom of 2006 and 2007, when they were encouraged by easy credit rates and UAE banks' relaxed lending criteria.

Then prices plunged by more than 60 per cent during the property crash in 2008 and 2009, leaving thousands of mortgage holders in negative equity and forcing the UAE's two biggest mortgage providers, Amlak and Tamweel, to stop lending for almost two years as mortgage financing ground to a halt.