Panel to draft UAE Mortgage Law set up

The Central Bank has set up a committee to draft a mortgage law as the UAE pushed ahead with plans to join Saudi Arabia and other countries in enacting rules to organize this sector and prevent a crisis similar to the US Subprime distress.

The Arabic language daily Alkhaleej quoted what it described as a “prominent” banking source as saying the committee was created at a recent meeting between the Central Bank and representatives from the country’s 23 national banks and 28 foreign units.

It said the Central Bank told bankers that the mortgage law would be based on three main elements, including lending rules to be approved soon, benefiting from the experiences of countries with such laws, and guaranteeing the rights of lenders.

“The law will involve a legal framework guaranteeing the rights of lending institutions in case of default by the borrower…this means the lenders will have the right to sell the borrower’s property in defaulting cases,” the paper said.

It quoted the source as saying the preparation of the mortgage law would take time but expected it to be ready before the end of 2013.

The UAE has considered enacting a mortgage law in the wake of the 2008 global fiscal crisis to streamline such activity and forestall any crisis in the future.

The Central Bank has already taken a first major step by agreeing on rules governing mortgage loans in line with proposals by the UAE Banks’ Union.

Following a sharp slowdown in the wake of the 2008 crisis, UAE banks started to relax curbs on property loans and sharply boosted domestic mortgage credit in the third quarter of 2012, indicating the sector has started to recover.

Mortgage credit extended by the country’s 51 banks leaped by nearly Dh11 billion in the third quarter, a growth of around 4.4 per cent over the second quarter.

Growth stood at 4.8 per cent Y/Y, the largest quarterly increase since the credit boom during 2007 and most of 2008, according to bankers.

From around Dh240.6 billion at the end of the second quarter, total mortgage credit provided by the 51 banks rose to nearly Dh251.4 billion at the end of the third quarter of 2012, according to data by the central bank.

The sharp rise followed a decline through 2011, when real estate lending dipped by 0.4 per cent to Dh239.6 million at the end of the third quarter from Dh240.6 million at the end of the second quarter of the same year.

In recent comments, a well-known Arab analyst said UAE banks need to create a comprehensive property database and an early warning system to manage their mortgage credit amidst prospects for a fresh boom in this sector.

Nassir Al Saeedi, former chief economist at the Dubai International Financial Centre, said recent announcements by the UAE government to embark on $multi-billion projects mean that the country, mainly Dubai and Abu Dhabi, are on the verge of a fresh boom in the real estate sector, one of the key components of the UAE GDP.

Saeedi, Lebanon’s ex-economy minister, said the boom would also be supported by an expected influx of foreign capital into the UAE, which is “now considered as a safe haven for investment” in a region battered by political and economic upheaval.

In an article published in the London-based Saudi Arabic language daily Al-Hayat this week, Saeedi said news that the UAE central bank is planning to enforce new mortgage credit curbs “reflect its concern about the new real estate boom.”

“We believe that despite potential risks, exploiting the new real estate boom is still possible …but unlike the unstable period of 2005-2009, banks should adopt a bolder and more open approach towards their mortgage lending policy by giving more attention to expanding their asset value and income sources,” he said.

“To achieve this, banks must develop a comprehensive property database covering key information about the sort of investment, the financed property units, and their condition, location and nature...this will enable banks to better evaluate their assets.”

Follow Emirates 24|7 on Google News.