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Steep mortgage hampers Dubai property recovery: JLL

By Parag Deulgaonkar

Although there is no shortage of people looking to buy property in Dubai, it is the steep mortgage rates that is hampering their decision, believes a real estate expert.

“Interest rates are still too high here and we can definitely say it is one of the constraints. It will probably fall… That will obviously help the market to recover,” Craig Plumb, Head of Research-Mena, Jones Lang LaSalle (JLL), told Emirates 24|7.

The UAE market is still dominated by cash buyers, and just 30 per cent of residential transactions actually use mortgage.

“The problem is not the shortage of people looking to buy – it is the affordability. If you improve affordability, it will increase the number of people looking to buy properties here,” believes Plumb.

Late last year, UAE banks started competing on mortgage prices by sugarcoating their offerings with freebies and extras to lure customers.

In the past, banks were charging anywhere between 8 and 10 per cent per annum on a mortgage, but interest rates have climbed down to a sweeter range.

In October 2011, United Arab Bank (UAB) offered a benchmark rate of 3.99 per cent while HSBC offered a rate of 4.99 per cent for a limited period. Most banks, however, still offer interest rates ranging between 5 and 8 per cent.

A number of developers too have urged banks to lower their interest rates and ease lending terms to allow more people to apply for home loans. Bitten by the property price slump of 2008-2009, most banks now offer mortgages only for completed properties, with a financing range of 70 to 80 per cent of the asset value, down from 90 per cent during the boom days.

“Even in relatively mature markets such as the UAE, a minimum monthly household income of around Dh20,000 is required to access housing finance in the form of bank loans and mortgages, while 45 per cent of households in the UAE currently earn less than Dh15,000,” Plumb had said earlier.

Earlier this month, UAE Central Bank revealed that bank credit to the UAE real estate sector had fallen from around Dh163.1 billion at the end of 2010 to about Dh160.1 billion at the end of September 2011.

NCB Capital report last year said the mortgage markets in the six-nation Gulf Cooperation Council (GCC) remain extremely underdeveloped by global standards.

In the UAE, it was only 4 per cent in 2005, but is estimated to have surged to around 14 per cent in 2009 while Kuwait and Qatar stood at around 14 and 9 per cent, respectively. In Saudi Arabia, it is only around 1 to 3 per cent while it is estimated at nearly 4.5 per cent in Bahrain.

Moody’s Investors Service in an earlier report had indicated that the average mortgage penetration rates for emerging markets were about 15 to 30 per cent, while in developed countries, mortgage lending accounts for over 50 per cent of gross domestic product.