Business | Banking
Amlak move 'due to liquidity crunch'
Amlak Finance PJSC, the UAE's largest mortgage lender's decision to cease new financing is due to the liquidity crunch and not because of a property market downslide, according to industry experts.
- By Nadia Saleem, Staff Reporter
- Published: 23:35 November 20, 2008
Dubai: Amlak Finance PJSC, the UAE's largest mortgage lender's decision to cease new financing is due to the liquidity crunch and not because of a property market downslide, according to industry experts.
Chris Dommet, chief executive of John Charcol, mortgage broker said the company is possibly facing a lack of funding at the moment to expand their bookings further.
"The message that people might infer from this is that there is a problem in the property market, which is not the case."
"The market has gone slower but there is still no credit problem here and with most of the banks, there isn't really a liquidity issue either," Dommet said.
He added that while the financing company normally relies on secondary markets to raise funds that have dried up, "they need to put in place alternative funding mechanisms."
"Their current reliance on secondary markets is in the hands of global forces," he said, adding that the merger with Tamweel on the horizon could change the way the operations are funded.
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Mohammad Binbrek, chief executive of Dubai Properties, said that there is a lot of unnecessary panic in the market and that Amlak is only going through a temporary readjustment. "There might be a new strategy of financing but I'm confident they will not stop financing completely."
He added that although financing seems to be a big issue, less than 10 per cent of their customers rely on it. "A lot of real estate is being purchased with people's own money. There are less transactions but it is not because of financing, it is people's sentiments," he said, and that people are taking the 'wait and see' approach.
Meanwhile, Sudhir Kumar, managing director of Realtors International, a property consultancy firm in the Morison Menon Group, said that the reduced mortgage availability is good for the economy, even though the market may be stagnating.
"A re-think on the parameters of providing mortgages creates a mature market. It will encourage serious buyers who have proper funding mechanisms," Kumar said.
He added that the government's assurance of a more transparent mode of mechanisms would make the entire mortgage process function in a much better way.
Credit issues
Kumar said that though banks will avail of government funding to help the liquidity situation in the market, they are taking their time.
"Banks are re-evaluating their stances in the overall situation and are revamping regulations," he said, adding that at this stage, they need to rethink and minimise on their pitfalls.
There is a rethinking on rules and regulations that should be followed and parameters that are being reevaluated by the financial institutions
On the other hand, Dommet said that he hopes the banks will not follow suit after Amlak's decision and reduce lending rations as was done five weeks earlier when Amlak and Tam-weel decided to drop their loan value ratios from 90 per cent to 65 and 75 per cent respectively due to issues of liquidity.
"The property market took a hit before and hopefully this would not create the same impact. The fact that Amlak has temporarily stopped lending should not affect the banks at all. It is only temporary until they sort out their deposit base," said Dommet.
Another upside to the limited housing financing available in the market, according to Kumar, is the dropping realty prices.
"The fabricated prices due to speculators will return to normal rates. At some instances, there was a hike of 800 per cent. This was not a healthy market but it will return to normal now," said Kumar.
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