Regulating real estate and mortgage markets a priority

Abu Dhabi: Regulating and streamlining the property and mortgage markets in the UAE has become a top priority, according to Central Bank Governor Sultan Bin Nasser Al Suwaidi.

The Central Bank is currently drafting feedback forms to collect the necessary data about mortgages more accurately in accordance with the Basel II framework.

"This arrangement will help us to assess potential risks more accurately, and find the necessary mechanisms to face, control and manage such risks better," Al Suwaidi said.

"We are looking positively at the developments in Dubai and Abu Dhabi, where the authorities have introduced laws to regulate their respective property markets," he said in his address to Housing Finance Conference, organised by the Arab Monetary Fund, in the capital on Wednesday.

"Such laws protect the rights of investors and owners, while supporting the banking and financial systems in the country."

Participants agreed that the absence of mature housing finance markets in the region implies a neglect of the property wealth in the economic framework, while the absence of a credit bureau still presents hurdles.

"Here, there are no credit bureaus as is the case in developed countries, or in some of the developing countries. The importance of a credit bureau lies in creating a credit culture, offering financiers the ability to assess the risks involved," said Syed Farhan Fasihuddin, Housing Fin-ance Programme Manager at the International Finance Corporation.

Safe limits

The Central Bank maintains that local banks' exposure to the property sector is still within limits. "Banks' exposure is still within a safe margin below the 20 per cent of the total deposits, the limit set by Law No 10 for 1980," Al Suwaidi said.

Participants also agree that the US sub-prime mortgage crisis had a minimal effect on the region.

"It is a fact that structured instruments based on property are still immature in the UAE, while sub-prime mortgage do not exist at all, and with the marginal exposure of the local banks to the US real estate markets, the crisis will not have any effect on the banks' profits for 2007 - expected to grow beyond the results of 2006," Al Suwaidi said.

Meanwhile, the World Bank Group is supporting the region's efforts to establish sound housing fin-ance markets to provide homes for middle and lower income segments.

"The UAE needs to take into consideration the problems of other countries when it comes to develop its own housing finance market," said Michael U Klien, vice-president for financial and private sector development at the Group.