Until we know how large down payments must be, and what other terms will apply, who will be willing to issue a new mortgage?
Central Bank fulfills its duty to act prudently
For people in the mortgage business, this might be a particularly good month to take a holiday. The Central Bank said this week it will decide next month whether or not it will relent on the stringent mortgage-loan rules it imposed at year end. Until we know how large down payments must be, and what other terms will apply, who will be willing to issue a new mortgage?
The Central Bank has been faulted for its prudence in this matter. But nobody wants another property bubble like the 2008 debacle, and some bubbles did appear to be forming.
Considering the fragility of our markets, the UAE has few asset classes to tempt investors, making property pre-eminent. Letting that sector overheat again would have meant bigger trouble.
The issue is the Bank's blunt-force tactics. Consultations with stakeholders before a regulatory change can ease the shock of surprise, the sort of unexpected setback investors abhor. And in particular, applying the strict rules to first properties - in which borrowers intend to live - seems less useful than putting limits on speculative bulk buying. The Central Bank will have a lot to review.
Loans and credit, always important, seem to be doubly prominent. For citizens, the end of debtors' prison and government-sponsored debt relief will let many people sleep better at night; growing emphasis on saving and money management will help the next generation avoid some traps that snared their parents.
There is plenty of scope for government action in the battle for wise use of credit. For example, the banks complaining about the mortgage rules are themselves the subject of criticism, some of it expressed in The National in recent days, from Emiratis who have felt positively besieged by offers of easy debt. The reality is that lenders and borrowers both need to exercise self-discipline if debt markets are to be healthy.
The banks, with their own sophisticated analysis of the economy, may have known every bit as much as the Central Bank about overheating property markets; if the Central Bank found it prudent to protect the banks from their own eagerness to lend, then it had a duty to act.
The challenge for all concerned is to encourage a robust property sector but keep it from overheating. Getting that balance right is as vital as it is tricky.