Abu Dhabi Finance, one of the country's newest home finance providers, is to offer discounted loans for four of Sorouh Real Estate's projects in the capital. Property buyers at Sky Tower, Sun Tower, Tala Tower and Golf Gardens will be offered mortgages with interest rates starting at 7.24 per cent, on loans of up to 85 per cent of the cost of the property. The mortgages will cover 1,200 homes across the four projects. Sky Tower, Sun Tower and Tala Tower are on Reem Island, while Golf Gardens is next to the Abu Dhabi National Golf Club. Because they are all off Abu Dhabi island, investors of any nationality can buy them.
"We're getting an increasing number of inquiries from long-term, or would-be long-term, purchasers," said Phil Ward, the chief executive of Abu Dhabi Finance. "As a mortgage lender, I want rates to be lower because ? part of responsible lending is presenting something to the client which is affordable." Abu Dhabi Finance has seen a 150 per cent increase in the number of applications for mortgages in principle from March to April, a company spokeswoman said.
The lender was launched late last year by five of the capital's largest companies: Mubadala Development, the investment arm of the Abu Dhabi Government; Abu Dhabi Commercial Bank; Aldar Properties; Sorouh; and the Tourism Development and Investment Company. Analysts say that while Abu Dhabi Finance's move may have an effect on the local mortgage sector, it is unknown whether it could improve the country's mortgage market situation.
"It could start the ball rolling, but it's too soon to make a call," said Aymen el Saheb, the head of operations at Drahem Financial Brokerage in Dubai. "It might have a localised impact on the Abu Dhabi market, but whether that would stimulate the whole UAE mortgage market is hard to say." Fears of a rise in mortgage defaults and non-performing loans in the property sector are stopping banks from writing further home loans. Credit Suisse estimated that banks might lose as much as Dh23 billion (US$6.26bn), or almost half of their Dh60bn overall mortgage lending.
The mortgage market has virtually dried up since the start of the downturn, forcing banks to cut back on lending. But there are already signs the banks are willing to ease up on liquidity to stimulate the mortgages business and try to curb a further fall in property prices. According to Colliers, a property consultant, prices in Dubai have fallen as much as 40 per cent since the start of the year, while other analysts estimate an almost 60 per cent drop in the price of high-end apartments and villas.
"There are signs of easing liquidity," said Robert McKinnon, the head of research at Al Mal Capital in Dubai. "Eibor [the Emirates interbank offered rate] is falling and there is lending activity seen in the market. As for the mortgage market, it's not the question of finding liquidity, it's about finding customers. We need to see more qualified buyers coming into the market for home financing to make a turnaround."
Mr McKinnon added that interest rates also needed to fall further. The number of mortgage transactions in Dubai has picked up since the start of the year, said Ronald Hinchey, a resident partner at the property consultancy Cluttons. In April, the firm handled about 90 mortgage valuations compared with 40 in January, but still less than half from a peak of 280 last summer. "Some of them were for people with low mortgages who needed refinancing," said Mr Hinchey. "There are definitely transactions going on now that weren't going on before."
Additional reporting by Angela Giuffrida and Travis Pantin skhan@thenational.ae