New mortgage rules to drive UAE property boom
Dubai, December 5, 2013
The new property mortgage cap by the UAE Central Bank, which came into effect this week, will deliver more stability to the property market but further measures to curb the negative impacts of speculation may be required, said top real estate consultant Cluttons.
The property expert welcomed the new UAE mortgage cap regulations, but warned that more work needed to be done to tighten certain areas of regulation.
The new measures include loan to value (LTV) mortgage limits of 80 per cent for UAE nationals and 75 per cent for expatriates for first investments of under Dh5 million ($1.36 million).
For second home, purchases of properties valued over Dh5 million, mortgage limits are now set at 65 per cent of the property’s value for UAE nationals and 60 per cent for expatriates.
Steve Morgan, head of Cluttons Middle East pointed out that the new rules will go some way to deliver a more stable property market in the UAE and stabilise the recent surge in activity.
"But while this is a positive step, 80 per cent of the market is driven by cash buyers according to the Land Department’s own estimates, so it remains to be seen whether this latest regulatory measure to regulate the property market will have a significant impact," he noted.
According to Morgan, the latest move demonstrates the government’s commitment to fostering a stable and sustainable pace of growth in the national real estate sector.
"By curbing LTVs, the exposure of banks is significantly reduced and will no doubt shield them from a repeat of the debt-linked challenges that surfaced during the 2007-08 period. The focus on affordability by limiting monthly repayments to 50 per cent of monthly salary offers a sensible measure to enhance due diligence that previously didn’t exist. But with the knowledge that these measures were coming into force, the limits have already been factored into the market and will help to drive sustainable growth," he added.
According to Cluttons Q3 Winter Property Market Update report the Dubai Land Department’s recent doubling of property registration fees from 2 per cent to 4 per cent, is already impacting the volume of deals being recorded in Dubai’s residential market.
"The vibrancy in the residential market has resulted in growing confidence in the real estate sector, but we believe concerns of the market overheating are still overly negative, especially given that despite the recent gains, average residential values remain well below the market peak," observed Morgan.
"Although the long term effect remains to be seen, short term indicators show that recent regulation appears to be stemming further sharp increases in property prices. Rather than being fuelled by ‘fly-by dealers’, current demand is primarily being driven by a growing population and rising employment levels," he added.-TradeArabia News Service