The United Arab Emirates central bank capped the size of mortgages banks in the country can offer as it moves to avoid a repeat of a property bubble that caused values to plummet after 2008.
Foreigners can borrow 75 percent of the value of a first home priced at 5 million dirhams ($1.36 million) or less and U.A.E. nationals can get 80 percent, according to a document circulated by the bank and seen by Bloomberg. The limits are 65 percent and 70 percent, respectively, for homes worth more than 5 million dirhams.
Dubai, the second-largest of seven sheikhdoms that make up the U.A.E., saw home prices surge at the fastest pace in the world in the second quarter, stoking concern that another property bubble may be growing. That prompted the emirate’s government to double real estate transaction fees to rein in speculation. Dubai suffered one of the world’s worst property crashes in 2008 when speculators fled the market and saddled banks with unpaid loans.
The regulator capped mortgages for second homes and investment properties at 60 percent of the value regardless of the price. Buyers of properties before they are built can borrow no more than 50 percent of the value “given the long- term nature of the development process and the higher level of risk to completion,” the regulator said. Advance sales, known as off-plan, were seen as a main cause of the previous property bubble.