Business | Construction

Property industry divided over mortgage rule

Cap on loans may deter middle-segment buyers from purchasing real estate

  • By Deena Kamel Yousef, Staff Reporter
  • Published: 18:18 December 31, 2012
  • Gulf News

Dubai: The real estate industry seems divided over the surprise move by the Central Bank on Sunday to tighten UAE property markets by capping mortgage loans at 50 per cent for expatriates. Those supporting the move believe it would scare away speculators. The rest believe the cap would dramatically slow down the industry’s recovery next year.

“The new circular, once implemented by banks in the UAE, would drive down demand for properties among end-users as they require a 50 per cent down payment. But it would also stop property prices from spiralling out of control which will be a positive factor for the economy,” said James Mathew, chairman of the Institute of Chartered Accountants of India, UAE Chapter.

Asked about the impact on the industry and whether it could deter developers from launching new projects in the future, a spokesperson at Emaar Properties said in an email to Gulf News: “The decision by the Central Bank regarding mortgage limits will contribute to strengthening the property sector by encouraging serious buyers to invest in the country’s property sector.”

Some brokers say the rules will stop the market from over-heating but a softer policy would have been better for end-users, that is, people who buy homes to live in rather than for investment. “It will slow things down. Prices have been rising rapidly over the last six months, so it is healthy that some measures are taken to ensure the market does not overheat, but I am concerned that these measures may be too severe,” said Ryan Mahoney, managing director of Better Homes. About 50 per cent of Better Homes’ clients get a mortgage to finance their purchase, he said.

“Policies need to reduce the number of speculative investors but at the same support end-users. If end-user buyers cannot get a viable mortgage, they will not be able to buy,” he said.

Softer measures may have been more suitable to achieve the same ends, he added. “There could be other ways to more surgically reduce speculators without hurting end-users such as having higher transfer fees for people who resell within two years of purchasing. Ultimately, most people agree with policies that avoid the market from overheating, however they just need to be a little more balanced,” he said.

Fact Box

The new regulations issued by the Central Bank may lead to a rise in residential rents in the long-term, some players in the real estate industry said.

The cap on mortgages means that some people will prefer to rent rather than buy property due to the difficulty in getting home finance, therefore driving up rents, said Tareq Ramadan, chairman of Tharaa Holding, a real estate investment company.

“The [regulations] will most likely increase rents as more people rent rather than buy and developers slow down construction of new properties amid concerns that sales will slow,” said Ryan Mahoney, managing director of Better Homes.

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