New UAE mortgage rules soon to curb speculators

Published Sunday, December 11, 2011

By Staff

The Central Bank of UAE will issue a new set of rules to better regulate mortgage lending by the country’s banks within the first quarter of 2012, the UAE’s apex bank has said.

A source at the central bank said new regulations will help reduce the proportion of speculators in the UAE’s property market by a more thorough scrutiny of the repayment ability of a borrower, as well as determining a “reasonable proportion” of the price of the units as a down payment.

The source confirmed to Al Khaleej newspaper that “these new rules will arrange mortgage system so that it will not allow to those who have small cash flows to obtain mortgage beyond their ability to pay their debt.”

The UAE’s banking sector has been saddled with a growing proportion of non-performing loans (NPLs), with bank provisions against such loans reaching a record high last month, according to official data.

According to data released by the UAE’s Central Bank, total provisioning by banks in the country rose to Dh67.3 billion in October, up 18.5 per cent in the first 10 months of 2011. Specific provisioning for NPLs is up 17.2 per cent in the first 10 months, while general provisions are up 23.2 per cent in the same period, data shows.

The Central Bank source added that new regulations will work to limit the growth of credit which, if left unmonitored, may result in excess damage to the UAE’s banking and financial sector. According to official data, there is a Dh10.5 billion gap between UAE bank deposits and loans, which is detrimental for the sector’s future growth prospects.

The source revealed the new regulations will increase the activation of the real estate sector and facilitate the purchase of units, whether residential or commercial.

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