UAE Central Bank 'may soften' expat mortgage cap limit

The Central Bank of the United Arab Emirates (UAE) announced at the back end of 2012 that it intended to tighten the spending power of international movers when it came to the acquisition of properties.
At present, there is no official limit in place, offering expats the luxury, some would argue, of being able to get their feet on the property ladder with enviable ease. In short, they can easily acquire a 100 per cent mortgage, meaning no deposit has to be put down.
However, the Central Bank wants to change this orthodoxy and has confirmed that it intends to introduce a cap to expats, which has been provisionally set to just 50 per cent of the value of any given property.
It wants to bring to an end an era of property buying that is not entirely conducive to good economics – the constant frenzy, so to speak, of snapping up properties before offloading them never results in an entirely transparent market whose highs and lows can be effectively gauged.
Needless to say, the move hasn’t exactly gone down well with banks in the UAE. There is a large amount of risk attached to reconfiguring mortgages this way, which is heightened by the fact that the emirates are largely comprised of international workers.
If many of them were to default on their loans, for example, the financial repercussions would be substantial, possibly even more detrimental than the financial crisis of 2008.
With this in mind, officials from financial institutions have been keen on airing their views with the Central Bank, and will now get an opportunity to do so at a meeting next month. It is already being speculated that it will soften its initial cap to a more attractive 60 per cent.
The ambiguity of it all has caused some uncertainty in the UAE, with Jean-Luc Desbois, managing director of mortgage brokerage Homematters, stating that as many as half of lenders have already put in place measures that reflect the Central Bank’s initial limit. Others, meanwhile, are continuing “business as usual”.
“At the moment everything is up in the air, it is confusing,” the property expert said. “We have had a number of banks who said they will honour all pre-approvals until they expire but some are looking at that and are making a decision.”
In related news, Dubai was recently found to have the strongest property market in the world. According to the Global Property Guide, the emirate’s residential property index increased by 13.46 per cent in 2012, compared to a 1.8 per cent decline in 2011.
“Even the steady and consistent growth to pricing we have seen in the past year in Dubai is truly impressive when placed alongside the international markets,” said Niall McLoughlin, senior vice president of DAMAC Properties.
“While we still predict a more stable growth pattern through 2013, Dubai’s property market is certainly again considered one of the best locations in world for real estate investment.”