Banks in the United Arab Emirates plan to ask the central bank to delay by 30 days implementing new caps on mortgage lending that were announced at the end of last year, according to three bankers familiar with the plan.
They also plan to speak with the central bank on raising the new loan-to-value lending limits required for both citizens and foreigners, they said, asking not to be identified because the discussions are private. Chief executive officers of U.A.E. banks that are part of the Emirates Banks Association met in Dubai late yesterday to discuss the rules, they said. A spokesman for the association could not immediately be reached.
The central bank issued new rules on Dec. 30 that restricted mortgages for expatriates to 50 percent of the value of the property for a first home and to 40 percent for the second. Financial institutions may lend up to 70 percent of value to U.A.E citizens for the first dwelling and up to 60 percent for a second. Previously, there were no loan-to-value limits and some lent as much as 90 percent of the value.
The restrictions follow a recovery in home prices in parts of Dubai and new government plans for projects including a district boasting the world’s biggest shopping mall and five theme parks. The plans evoked the debt-fuelled drive to turn Dubai into a regional tourism and financial hub before property prices crashed more than 65 percent during the global recession, bringing the emirate to the brink of default in 2009.
“Caps on mortgage loan-to-value ratios shows that government authorities are concerned about market stability and want to avoid any rapid increase in real estate prices,” Craig Plumb, regional head of research at Chicago-based broker Jones Lang LaSalle Inc., said today in an e-mailed report.
Most bankers at yesterday’s meeting favored loan-to-value caps ranging from 70 percent to 85 percent, with a higher limit for citizens and lower for foreigners, according to two of the bankers. Some favored no loan-to-value limits for the first property for both citizens and foreigners, they said.
The U.A.E. economy, the Arab world’s second-biggest after Saudi Arabia, probably expanded by 4 percent in 2012, while growth is expected to slow to 3.1 percent this year, according to the median forecast of 14 economists compiled by Bloomberg. The U.A.E. comprises seven sheikdoms including Abu Dhabi and Dubai, and foreigners make up over 80 percent of its population.
Total real estate mortgage loans at the U.A.E.’s 51 banks were 162.61 billion dirhams ($44.3 billion) at the end of August, about 1.1 billion dirhams higher than at the end of 2011, according to data on the central bank website. In 2008, the last boom year before the credit crisis, mortgages jumped by 69 billion dirhams, according to central bank data.
Since 2008, “there is far more emphasis on financed rather than cash purchases” of residential properties, Plumb at Jones Lang LaSalle said in a phone interview today. “Based on projects in which JLL is involved, purchases requiring mortgages comprise the majority of all potential buyers.”
Dubai first allowed foreigners to own property in 2002, which sparked a real estate boom attracting investors from India, Iran, Pakistan and Russia eager to profit from rising prices. During the financial crisis, hundreds lost their jobs and fled the city, defaulting on payments. After the crash, lenders and developers focused on investors who plan to live in the homes they purchase rather than speculative buyers.
The economic recovery over the past year helped push property prices higher in some areas of Dubai. The average sale price of a mid-range villa soared almost 30 percent in the year to November, while mid-range apartment prices advanced 16 percent, according to data compiled by Cluttons LLC in Dubai.
Last month’s regulations follow new rules announced in April that required banks to not lend more than 100 percent of their capital to local governments and the same to state-related entities in a bid to reduce concentration risk. The central bank postponed the implementation of the rules pending a review.
The U.A.E. follows other countries that have taken steps to cool property markets. In October, Singapore capped the loan-to-value ratio at 60 percent for the first home and 40 percent for a second.
The Hong Kong Monetary Authority also last year set a maximum loan-to-value limit of 30 percent for homes with a value of more than HK$10 million ($1.3 million) for investors using their assets and not income to borrow. In June 2011, it set the minimum down payment for some mortgages to 40 percent for homes costing more than HK$7 million to help ease price rises.