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Emirates Banks Association Considers Capping Mortgages

News Posted On: 28 January 2013

The Emirates Banks Association is meeting with the United Arab Emirates’ central bank to discuss measures to curb speculation in the real estate market, according to a statement from the industry body’s chairman on Sunday.

The EBA is waiting for a response from authorities to its proposals to cap mortgage lending on a first property, and it wants a different cap for UEA nationals and expatriates. The proposed cap for UEA nationals is 80% LTV where expatriates’ mortgages will be capped at 75% LTV under the proposals.

The industry body is also proposing that mortgages for second and subsequent home purchases should be capped, again at different rates: 60% LTV for expatriates, 65% for UEA nationals.

Emirates Banks Association Chairman Abdul Aziz Abdulla Al-Ghurair told reporters in Dubai on Sunday that he hoped to see a cap of 50% on mortgages for properties under construction.

The recommendations come in the wake of the regulator’s move in the last month of 2012 to restrict mortgage lending to both foreign buyers and UEA nationals in the second-biggest Arab economy. Property prices in Dubai, which suffered one of the world’s worst real estate crashes after the 2008 credit crisis, began to recover last year.

Mr. Al-Ghurair said the proposals included a limit of 25m dirhams (US$6.8m) for loans on a single mortgage, and emphasised that they were part of a wide-ranging discussion with the central bank on all aspects of real estate lending.

‘It’s the intention of the central bank to ensure the health of the economy, the health of real estate developers and the banking system and from this, the idea came to put some guidelines down for mortgage lending,’ Mr. Al-Guhrair said. He went on to tell reporters that he thought it ‘in the interests of buyers’ to cap mortgages: ‘we don’t want everyone jumping in.’ There is presently no federally mandated cap on mortgages in the Emirates.

A circular sent by the central bank to banks at the end of December said that mortgage loans to foreign buyers should not exceed 50% of the property’s value for first homes and 40% for subsequent homes, while the caps for UAE nationals were put at 70% and 60% respectively. The EBA has told the central bank that it proposes to limit mortgage loans to property speculators to 50%, though the details of this idea are still under consideration.

The EBA has also asked the Ministry of Finance to expedite the introduction of a federal credit bureau.

While the caps suggested by the EBA are slightly higher than those suggested by the central bank’s December circular, it now seems certain that some caps will be introduced. Dubai and Abu Dhabi, in particular, are investment environments that invite bubble formation: high numbers of speculatory or expatriate investors, a burgeoning market in luxury properties and a recent catastrophic crash in which prices fell 50% from their 2008 highs all make regulation seem more attractive to the UAE real estate lender.

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