There are clear signs that the credit crunch has finally reached these shores. The price of Brent oil fell below US$50 (Dh183.70) a barrel yesterday, hit by a worldwide lack of demand and a slump in economic activity. While Abu Dhabi at least may be immune to any downturn, other parts of the Emirates rely on international loans and economic activity. As credit dries up, so too will demand for properties, say analysts, causing job losses and cancellations of projects.
Amlak, the country's largest home lender, is suspending new loan applications until further notice, while other home lenders are also freezing their credit policies. Lenders are demanding larger down payments - sometimes as high as 50 per cent of the purchase price - effectively putting borrowing out of reach of many potential purchasers. Those most at risk are people who have already put down a deposit on a property without yet arranging the loan.
"I can fully understand the reasons why banks are reluctant to lend speculatively in the real estate sector," said Vincent Easton, the sales director at Sherwoods Independent Property Consultants. "However, if Dubai wants to secure its real estate market, it has to ensure that finance is available for the end user." To make matters worse, the cost of borrowing has soared. Three months ago, home loans were routinely offered with an annual interest rate of 7 per cent. That figure is now closer to 9 per cent, if it is available at all. It is not just the property sector that is affected. HSBC Bank is just one of several banks cutting consumer lending, making car loans more difficult to access and raising the salary limits for potential borrowers. Interest rates have also been raised. While the bank was offering loans at 4.5 per cent for new cars in August, that rate is now 5 per cent. Rather than lending, banks are focusing instead on attracting depositors. HSBC is sending text messages to selected customers, offering preferential rates of 5 per cent interest for those willing to leave money in accounts for up to three months.
Most analysts expect the credit crisis to continue for a couple of months at least, but unless some of the Government's Dh120 billion injection of emergency funds for banks - not all of which has been disbursed - filters down to customers and they resume spending, the likelihood is of recession here too.