Amlak loses 6% on freeze

The country's largest home loan company saw its stock fall by 6 per cent in market reaction to its freeze on new lending.

DUBAI, UNITED ARAB EMIRATES - June 23:   On site at the Falconcity of Wonders development in Dubai on June 23, 2008.  The project is a residential, tourist and recreational development modeled after the wonders of the ancient and modern world, including the Eiffel Tower, the pyramids and the Great Wall of China, among others. Pictured is one of the residential streets under construction.  (Randi Sokoloff / The National)
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Abu Dhabi // Amlak Finance, the country's largest home loan company, saw its stock fall by 6 per cent on Thursday in reaction to its decision to suspend temporarily new lending. Analysts said the move, probably a result of a shortage of liquidity, would further slow property sales and hurt confidence in the market in the short term. The Central Bank, which has duties that include the oversight of the country's financial institutions, made no comment on Amlak's decision. Last week, it said it was discussing the possibility of creating new "financial vehicles" to prop up property loans, but it has yet to release details of how these vehicles would work.

Amlak is engaged in merger talks with Tamweel, the second-largest home loan provider. It was unclear how this latest development would affect the talks. Amlak's share price fell 5.56 per cent to Dh1.02, after dipping as low as 98 fils during the day's trading. Emaar Properties, which owns a 45 per cent stake in Amlak, also declined, losing 3.27 per cent to close at Dh2.96. Tamweel fell 5.71 per cent to 99 fils. The three stocks together are the biggest losers on the Dubai Financial Market (DFM) this year, with all of them having lost more than 80 per cent of their share price.

Meanwhile, a glimmer of hope emerged for would-be home buyers in the form of a teaser advertisement from a new home finance provider based in Abu Dhabi. "Soon your mortgage worries will be a thing of the past," the advertisement read, adding that more would be revealed on Nov 26. The new provider, with a working title of Abu Dhabi Finance, is rapidly setting up offices at the Abu Dhabi Commercial Bank building on Electra Street. Executives of the new company could not be reached yesterday, but people familiar with the plans said it would begin offering home financing for sales from major developers at the end of the month.

"It will improve liquidity and show a bit of confidence in the markets," said Chris Dommett, the chief executive of the Dubai office of mortgage advisory firm John Charcol. "It shows people are actively trying to find solutions to the current situation." Mahmood al Mahmood, the chief executive of Al Qudra Holding, said on Wednesday that the Government was looking at broadening the role of Real Estate Bank in Abu Dhabi to begin lending to distressed property and home finance companies.

It was unclear to what extent the problems encountered by Amlak were shared by other lenders. Analysts said its problems were probably a result of its inability to obtain enough outside capital to fund operations. Banks are reluctant to commit further funds to a property market that is weakening. But most of the country's financial institutions can rely on deposits and have direct access to government money, which home lenders do not have.

Arif Alharmi, the chief executive at Amlak, said the company was temporarily suspending new home financing while it reviewed its credit policy. It offered very little explanation for the move. Robert McKinnon, the managing director of equity research at Al Mal Capital, said the announcement was further proof of the difficult lending environment and foreshadowed troubles in the weeks and months to come.

"In the whole banking sector now it is very difficult to get a mortgage, and prohibitively expensive," he said, adding that mortgage interest rates were as high as 9.5 per cent. All lenders have significantly pulled back. Most have increased the minimum downpayments required and reduced the number of eligible borrowers by toughening their income criteria. Lloyds TSB announced earlier this month that it would stop lending for apartment sales.

Analysts said the move would further slow property sales and hurt confidence in the market in the short term. "Currently, real estate is suffering. If we see less availability of mortgages, this will add to the downfall, and to the correction of the real estate market," said Mahdi Mattar, the chief economist at Shuaa Capital. "Real estate is one of the biggest components of the economy, especially in Dubai, and we will see repercussions across the board."

Although the Government has promised to make as much as Dh120 billion (US$32.67bn) available to banks, little of the money has made its way to mortgage providers such as Amlak and Tamweel, or property developers, bankers said. Treasury officials at local banks said that the most recent cash injection from the Government - an instalment of Dh25bn - had been distributed this week, and that the funds should start filtering into the economy soon.

However, even with the extra cash on hand, banks have been wary of lending to the real estate sector for fear of exposing themselves further to the possibility of falling property prices. "Banks don't want to take further exposure at the current time, as the real estate market has been correcting significantly and extremely fast," said Mr Mattar. Home financing had been on the rise across the country before the credit crisis. According to estimates by Al Mal Capital, the volume of mortgages for residential properties rose by nearly 40 per cent during the first half of this year. Total lending for homes in the country is estimated at Dh50.9bn as of June 30. At the end of last year it was about Dh36.6bn.