Abu Dhabi Finance offers equity release

Abu Dhabi Finance, the Government-owned mortgage company, is offering loans to Emirati villa owners who use their property as collateral. The product, commonly known as equity release, comes shortly after Abu Dhabi Finance dropped its mortgage rates as low as 5.75 per cent and, in some cases, 4.9 per cent for select properties. The new product is called Mamlakaty, which means "my kingdom" in Arabic.

"There is so much equity locked away in private villas which could be put to use in other investments," said Ali Eid al Mehairi, the chairman of Abu Dhabi Finance. The product allows an Emirati who owns a villa in Abu Dhabi to borrow as much as 80 per cent against the house. That can then be used to repay any outstanding mortgage or buy another property, for example. Loans offered by the company also provide other possible benefits, including a down payment of as little as 15 per cent, tenures of up to 30 years and repayment options that include annual one-month payment holidays

But there seems little hope that such a product will substantially foster more house buying. "The volume is just not there. As such it will have very little impact, if any," said Iseeb Rehman, the managing director of the international property company Sherwoods. Economists, analysts and other experts continue to call for lower interest rates to spark a rebound in property prices. Job creation and more bank lending are also key ingredients for a market upturn, they say.

Last month, when Abu Dhabi Finance lowered its interest rates to 5.75 per cent, the lowest in the country, it said it wanted to spark a price war. Some banks have since followed suit but rates remain stubbornly high and far above global levels. Until the end of last year, mortgage rates were as high as 10 per cent in the UAE. " [Equity release] may be quite new here but these are tried and tested products. Lower interest rates are the only way to get the market moving," said Mr Rehman.

Mr Mehairi said the product launch was a direct response to requests from more than 400 Emiratis. Many of them were looking to buy, or build, second homes for their children, an Abu Dhabi Finance spokeswoman said. The offer is restricted to Emiratis and property in Abu Dhabi, where prices have declined far less than in neighbouring Dubai. Equity release is common in the UK and the US and this is not the first time it has been offered in the UAE, experts say. Amlak, the Islamic mortgage company, had a similar offering before it stopped issuing loans 18 months ago, as did RAK Bank. Neither could be reached for comment.

But experts say the use of equity release played a central role in triggering the US sub-prime crisis, as homeowners were allowed to take out new financing, or equity release, of up to 120 per cent of the underlying value of their homes. Allowing equity release of up to 80 per cent, as with the Abu Dhabi Finance product, is still considered relatively high in terms of prudent lending, experts say.