U.A.E. Banks to Seek Penalties for Those Breaking Mortgage Rules

The United Arab Emirates banking federation will recommend that the central bank fine lenders who violate stricter new mortgage loan rules as it seeks to prevent a repeat of a property bubble.

The federation, which counts the country’s 51 banks as members, will also ask the regulator to consider temporarily suspending banks from offering mortgage products or ban bankers from working in the country if they break the rules, Chairman Abdul Aziz Al Ghurair, told reporters in Dubai on Nov. 12.

“If somebody knows he will lose his work permit in the U.A.E., he will stop,” said Al Ghurair, who is also chief executive officer of Mashreqbank PSC.

Foreigners can borrow as much as 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 up to 80 percent under the new mortgage rules. The limits are 65 percent and 70 percent, respectively, for homes worth more than 5 million dirhams.

Dubai, the second-biggest of seven states 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 inflating. 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 and saddled banks with unpaid loans.

“This regulation is great news and coupled with the raising of the registration fees to 4 percent, I think it will encourage the ultimate users to buy property and eliminate flippers,” Al Ghurair said. Flippers, or short-term speculative buyers, “get themselves in trouble and they get the industry in trouble and in the end the buyer pays a higher price,” he said.

The Federation will also encourage the central bank to periodically review the loan-to-value limit, Al Ghurair said. If speculation and home prices continue to rise the only option the government may have is to impose a lock-in period of up to two years during which a buyer cannot sell property, he said.

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