UAE rate cut will boost real estate sector
The US Federal Reserve rate cut and the matching 0.75 per cent cut by the UAE Central Bank is likely to lower home mortgage rates in the UAE, which will encourage more investment into the real estate sector, consultants and experts said.
“The interest rate cut will see more people investing in the UAE properties as lending rates will come down,” Mohammed Ali Al Hashimi, Executive Chairman, Zabeel Investments, told Emirates Business.
“The real estate sector is thriving and the industry here is driven by market forces. But I do feel home mortgage rates will come down,” he added. The US Fed made an emergency 0.75 per cent rate cut in an effort to stem a share market collapse and overcome fears of a economic recession.
About 90 per cent of home mortgages in the UAE are adjustable rate mortgages (ARM) where the interest rate is periodically adjusted based on a variety of indexes such as six-month London Interbank Offered Rate (Libor). Currently, interest rates on mortgages hover around Libor plus 400 basis points. Mortgage rates have not come down despite the Fed cutting rates in 2007.
But for mortgage providers, the move is not likely to hit their bottomline, as cost of borrowing comes down, according to experts.
“We expect our business in the mortgage market will pick up in the first quarter of this year. Demand for commercial space is also expected to grow annually by about six million square foot until 2009.
And because of the cascading effect of non-delivery and delays in the previous years, the cumulative demand in the retail real estate sector is expected to be worth Dh74 billion,” Adel Al Shirawi, CEO, Tamweel, told Emirates Business earlier.
However, a senior Tamweel official declined to comment yesterday on possible plans to cut profit rates after the UAE rate cut. “I think that it [Fed rate cut] is going to be a plus for the real estate sector,” said Andrew Chambers, Managing Director, Asteco.
“The fourth quarter of last year has been the strongest quarter in terms of sales of villas and apartment. But a lending rate cut will encourage more people to invest.”
Tariq Hammed, Financial Consultant, Access Consulting, said mortgage providers have not passed on the benefits to their consumers. “The rates are generally linked to Libor and so if that goes down, then companies need to lower interest rates.” EFG-Hermes said the UAE home mortgage market is expected to grow ten-fold by 2012.
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