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18 May 2024

Dubai property buyers rush in as Central Bank puts UAE mortgage cap on hold

By Shuchita Kapur

Property buying is back at full steam in the UAE after the country’s Central Bank announced that it will be some time before any new cap on mortgages comes into force

In a move apparently aimed at eliminating speculators from the real estate market, the UAE’s Central Bank issued a circular to the banks on New Year’s Eve last month to cap mortgage lending for expatriates at 50 per cent of the property’s value and 70 per cent for nationals.

Banks were asked in the circular to cap expat mortgages at 40 per cent of the property’s value for the second unit and thereafter.

This move came as a surprise and pushed many potential buyers on the sidelines.

However, with the Central Bank announcing last week that any new cap may only come into force by the end of this year, buyers who had put their purchases on hold are back in the market, scouting for properties, and aiming to complete the transaction before any new cap kicks in.

 “Now, we have a bit more clarity on the Central Bank’s position.

“It’s possible that this will stimulate more sales ahead of the imposition of tighter restrictions later in the year – this would of course be the opposite of what the Central Bank is trying to do, which is to slowdown the level of activity and subsequent pressure on prices,” Craig Plumb, Head of Research, MENA at Jones Lang LaSalle (JLL), told Emirates 24|7.

“There has been a positive response to the news that the mortgage cap is yet to be enforced until later this year.

“Buyers who had put off purchasing are back in the market resuming their search for a property and investors are showing signs of confidence again,” said Riaz Ahmed, Residential Sales Consultant, Head Office, Better Homes.

“If anything, sales stalled while there was confusion in the market as buyers though that prices would fall and held off from buying. I expect sales to resume normally now that this clarification has been made,” agrees Charles Neil, an industry expert.

Nevertheless, experts believe that it is too soon to comment on whether or not this relaxation has already fueled the market.

“It is still too early to see the actual transaction results as reports only came out recently,” says Better Homes’ Ahmed.

“It is indeed too early to say if this [more sales ahead of the tighter restrictions] will happen or not,” adds JLL’s Plumb.

Real estate experts see more buyers take advantage of the current favourable loan-to-value ratios before the cap finally kicks in later this year.

“The market was doing very well before the announcement of the mortgage cap with increases as much as 50 per cent in some developments, specifically in Downtown Burj Khalifa area, where we witnessed apartments in The Residences go up incredibly within just six months.

“Of course, things paused for a while during recent weeks as people braced themselves for the final verdict on the mortgage cap.

“With buyers having enough time now to finalise mortgages at 80-85 per cent LTV, we will see a huge increase in mortgage transactions leading up to the final cut-off date,” added the Better Homes expert.

 Analysts maintain that the new cap, if it had come into force, would have hit the serious buyers.

 “Unfortunately, this cap would have hit the very people who could bring stability to the market, i.e. the first-time buyers and owner occupiers.

“It would do little to curb speculation. Speculators and investors are unlikely to take out mortgages, they want to have flexibility and move in and out of the market with ease.

“Taking out a mortgage is cumbersome and expensive,” said Neil.

However, there are some in the industry who believe that no significant changes were seen in the market this month.

“There has been no significant impact on the market from January 1, 2013, which was the day the news was out regarding the new mortgage law.

“The banks did receive many new urgent applications but as they are valid for a minimum of 60 days, buyers were in no hurry to close deals, which would impact the market.

“And again it has been clarified that the new cap will be implemented but would take around nine months for the same. The market will be stable for the coming months,” said Rushiraj Mehta of Legacy real estate.

“There are possibilities of the rents going up as tomorrow’s potential buyers now cannot take a mortgage will have to rent subsequently and thus can increase the rents overall,” he added.


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