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UAE mortgage caps postponed

Wednesday, February 06, 2013

 

The proposed mortgage cap in the UAE has been postponed while discussions of the plans take place.

The limit on lending to foreigners at a maximum of 50 per cent of a property's value, along with a cap on loans at 70 per cent for citizens, was announced at the end of last year, following 12 months of strong growth.

The plan was criticised by experts, who feared it might cause the market's strong recovery to slow down, while officials aimed to avoid another bubble as investors return to the economic safe haven of Dubai property.

The Emirati Banks Association announced this month that they had requested the Central Bank to "postpone the implementation of the regulation for 30 days in order to allow banks to assess and put forward relevant suggestions".

Now, the proposals have been put on hold, potentially for several months.

Richard Paul, residential valuations, Cluttons in Dubai comments: "After witnessing the collapse of the Dubai property market in 2008/09, it is clear that the UAE government is reluctant to relive the bubble to burst property effect again. The strong return of residential prices in 2012, particularly in Dubai, has been met with scepticism from some property experts, who felt that the growth was beyond sensible levels.

"By reducing LTV levels for expatriates and nationals, the Central Bank looks to regain some control from the hands of the local and international lenders, who to date have battled it out for market share by offering more attractive terms and potentially boosting property prices beyond sustainable levels.

"However, restrictive legislation will deter ‘first time buyers' from the market. First time buyers looking to invest and settle in the UAE are the type of investment that any property market needs. Increasing LTV ratios to unrealistic and unreachable levels will ultimately convince first time buyers to buy elsewhere, perhaps in their domestic markets.

"Despite the expected retraction from initial legislation, those steps taken by the Central Bank are sensible. The Central Bank's aggressive directives will go someway to discourage sentiment driven investors, who helped grow the bubble of 2008. Discouraging investors who look to make fast profits by ‘flipping' property is a good move, but we cannot lose the first time buyers which form the backbone of our property market."

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