U.A.E. Lender Group Says Central Bank Backs Mortgage Limits

The United Arab Emirates central bank is “comfortable” with mortgage lending ratios proposed by lenders and expects to issue new regulations before the end of the year, the chairman of the UAE Banks Federation said today.

There’s “general agreement” banks should lend U.A.E nationals as much as 80 percent of the value of their homes and expatriates 75 percent, federation head Abdul Aziz Al Ghurair said in Dubai. The regulator on Dec. 30 had issued a notice saying loans to expats, which make up the majority of country’s population, should be limited to 50 percent of a house’s value.

The central bank is seeking to protect bank’s balance sheets and avoid a repeat of the property market crash which caused prices to lose more than half their value after the financial crisis. Dubai home prices jumped 21.7 percent in the second-quarter from a year earlier, beating Hong Kong for the fastest pace in the world, Knight Frank LLP said on Sept. 9.

“We don’t want to see a spike in property prices,” said Al Ghurair, who is also chief executive officer of Mashreqbank PSC. “Whatever goes up fast can come down fast.”

Under the new rules, banks won’t be able to finance third homes bought by expatriates and mortgages would be limited to the equivalent of seven year’s salary or total income for an expatriate and eight years income for a citizen, Al Ghurair told reporters last week. Income would exclude end-of-service benefits which are paid by companies to employees.

Calls to the central bank weren’t immediately returned.


Expatriates make up more than 80 percent of the population of the U.A.E., which includes Dubai and Abu Dhabi, according to government estimates. Dubai first allowed foreigners to own real estate in 2002, sparking a boom that attracted investors from India, Iran, Pakistan and Russia. Dubai’s real estate market crashed during the financial crisis and many lost their jobs and left the city, defaulting on payments.

The central bank also expects to release revised limits for bank’s exposure to government-related debt in the next two months, Al Ghurair said. The U.A.E. central bank said April 2012 that banks must not lend more than 100 percent of their capital to local governments and the same amount to government-related entities to help reduce risk. There was no limit under previous rules. The proposed limits will “have slight changes downwards,” Al Ghurair said.

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