The United Arab Emirates’ (UAE) banking group is considering whether to ask the central bank to relax mortgage lending rules to stimulate a fragile real estate market, said sources familiar with the matter.
At the moment, first-time buyers of a home worth up to $1.3mn can only borrow up to 80% of the property value if they are UAE citizens, while the cap is 75% for foreigners.
The UAE Banks Federation’s retail banking committee has proposed to raise the limit to 85% for UAE nationals and 80% for foreigners, said sources.
They added that the CEO Advisory Council, made up of bank chief executives, is considering the proposal and, if approved, will suggest it to the central bank. The UAE property market has been suffering from a flood of new supply, with S&P estimating earlier this year that prices in Dubai—the country’s largest real estate market—could slip 10-15% over the next couple of years.
Dubai Land Department reported that Dubai property market transactions fell 16% year-on-year in value in the first half of the year. Still, some banks are reporting an uptick in demand for mortgages as customers seek to take advantage of the price drop.
Subroto Som, executive vice president and group head of retail banking at Mashreq, stated: “The mortgage business has been picking up. Prices have come down and prices are stabilizing.”
“The mortgage demand is primarily driven by people who either decide to switch from rentals to ownership or upgrade to bigger properties, and investors who want to take advantage of high rental yields.” He added.
He further stated that recent government pledges to offer long-term visas to selected investors and professionals and allowing foreigners to own 100% of the businesses outside free zones will further stimulate mortgage demand. This will also result in more favourable payment terms offered by real estate developers in the country.
Mashreq’s outlook for new loan growth in 2018 will be less than 5%, with new loan growth driven by mortgages, he stated.
Meanwhile, Abu Dhabi Islamic Bank stated that it was also seeing a pick-up in its mortgage business.
“We are growing in real estate, we are targeting the end-user and people who want to live in this country,” said acting-chief executive Khamis Buharoon al-Shamsi. “We are targeting them, they are not speculators.”
The UAE’s current mortgage lending rules were introduced in 2013, at a time when property prices were on the rise, in an effort to prevent another boom-and-bust cycle in the property market.
Property prices in the country plunged more than 50% between 2008 and 2019 after a speculative bubble burst, pushing it close to default.