Dubai residents call for relaxation of mortgage rules

'There is a major segment of tenants who are being kept away from ownership by the current regulations,' Core Savills said.
Difficulty securing finance is the greatest deterrent to potential property buyers in Dubai, the survey found. Emaar Hospitality Group
Difficulty securing finance is the greatest deterrent to potential property buyers in Dubai, the survey found. Emaar Hospitality Group

A sluggish Dubai property market is reviving calls to relax mortgage caps and kick-start a real estate recovery.

Big project launches at the annual Cityscape Global exhibition in Dubai this week were not enough to distract attention from a stubbornly subdued property market. The focus naturally turned to what could be done to lift sentiment, with more than seven in 10 people surveyed by broker Core Savills in Dubai saying mortgage caps should be relaxed.

Difficulty in securing finance is the greatest deterrent to potential property buyers in Dubai, the survey found – with one in four saying they are being hindered by the current rules.

“There is a major segment of tenants who are being kept away from ownership by the regulations,” said David Godchaux, Core Savills’ chief executive.

The Central Bank of the UAE introduced a mortgage cap in late 2013, which restricted the loan-to-value ratio for mortgages at 75 per cent for expatriates and 80 per cent for Emiratis for properties costing less than Dh5 million.

Half of the people interviewed in the survey, which covered 800 tenants, expect the Dubai residential property market to recover over the next year. But elsewhere the view is less positive.

The latest market data released to coincide with Cityscape suggests there could be further declines in the market into next year before a much-hoped-for boost in activity as the 2020 Expo draws nearer. Developers are seeking to entice buyers as weak oil price and strong dollar, to which the dirham is pegged, act as a drag on the property market.

“What is interesting to note in Dubai is the decision of families to downsize and even send spouses and children home in an effort to save money,” said John Stevens, Asteco’s managing director. “We are seeing signs of this in Abu Dhabi with a migration or downsizing mainly from high-end large units, to more affordable developments.”

Dubai property prices fell by 2.4 per cent in the second quarter, 5.2 per cent on an annualised basis, according to data from Cluttons, the property consultancy.

While mortgage caps have succeeded in curbing speculation in some parts of the market, big developers such as Emaar Properties and Damac Properties continue to announce new project launches – often at a steep discount to completed units in the secondary sales market. Damac this week announced the sale of four-bedroom houses on one of its golf-themed developments starting from Dh1.6 million as it prepares to deliver 1,350 homes next month.

Damac’s managing director drew attention to the challenge of accurately matching supply to perceived demand in an industry that is often under close scrutiny. “If the market is stable, and prices are stable, and supply and demand are close to each other you are not happy,” said Ziad El Chaar. “And if the market starts growing and you start having growth in prices of 20 to 25 per cent you start saying, ‘we have a bubble’.”

Among the vast models and sprawling stands at Cityscape this week, much of the discussion focused on where the next catalyst for a rebound may come from – with mortgage availability regarded as an important factor in the volatile fortunes of the industry.

“For end users a more relaxed mortgage cap could well be a good thing. Having people put down roots in their communities is something that should be encouraged,” said Alan Robertson, regional chief executive for JLL, the global property consultancy.

A senior banker at an Abu Dhabi lender said banks would welcome a relaxation of the mortgage caps because most sales are still made to cash buyers and because mortgages are backed by an asset and so sometimes are seen as a safer risk.

Still, not all brokers believe the loosening of lending restrictions would represent a boost for the market. Some point to the speculative excesses of 2008 that began again to emerge four years later and which presaged the introduction of the mortgage cap by the government in 2013.

“Mortgage caps were introduced to limit speculator activity in the market,” said Faisal Durrani, Cluttons’ head of research. “So far they have proved quite effective … especially a couple of years ago in the wake of the Expo announcement. The government did people a favour and prevented them getting into too much debt. It is too soon to start tinkering with a measure which was only introduced recently. It is nice to have some stability in an emerging market.”

He says a relaxation of the rules could send the wrong message to the market. “Instead what Dubai really needs is more housing which is truly affordable and there should be guidance at a federal level to produce a definition of affordable housing.”

* with reporting by Mahmoud Kassem

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Published: September 7, 2016 04:00 AM


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