No more than 80% financing if realty market is to be protected

Dubai: Banks and lenders should not finance more than 80 per cent of a property in order to safeguard the market, said a senior official from Cairo University.

Adel Yehia Akl, professor of the faculty of engineering at Cairo University, said that transactions have slowed due to the reduction in financing available and those people who do have money aren't buying as they are watching the market.

Across the Arab world, there has been a decrease of 60 to 80 per cent in the luxury market, including villas. Prices in the medium range have decreased regionally by 10 to 30 per cent, said Akl.

It is well known that Dubai at the heady heights of the boom was allowing financing of more than 90 per cent in some cases, something that has proved to be unsustainable. While banks and lenders are creeping back into the market, the loan to value ratios will be reduced to a healthy level of a maximum of 85 per cent.

"Lenders must supervise the process of financing in the real estate sector and make sure of the ability of loan takers that they can pay.

"They must set a safe percentage ... They should not finance more than 80 per cent," said Akl.

However, if property prices decrease, then the limit should also decrease in tandem, he said.

Nicholas Maclean, managing director of CB Richard Ellis, Middle East, said that there is a lack of good supply in the regional real estate sector, saying that the Arab world is going to go through some high levels of vacancy going forward.

In quarter two 2007, there was around 240 billion euros (Dh1.3 trillion) of global investments available. In quarter two 2009, this was just 42 billion euros.

Maclean said by the end of 2009, the Europe, Middle East and Africa (Emea) region would be the primary recipient of new investment capital.

In 2009, one third of global real estate investment was spent cross-border. The GCC received just 10 per cent of that expenditure.

This is not enough as this region has the potential to capture a great deal more investment, Maclean added.

There are currently around 300 new funds created over the last 12 months, targeting real estate.