The current scenario in Dubai’s real estate sector seems lucrative for any prospective property buyer, with excess supply and falling prices. However, the lure of this transformed market is being dented to a certain extent by stringent lending criteria adopted by lenders. Jean-Luc Desbois, managing director of mortgage consultant firm Home Matters, in a freewheeling chat with , begs to differ though, saying mortgages are readily available for the right candidate.
“Banks are more willing to lend to a good salaried employee than they are to someone running his own small or medium-sized business because most businesses in the last couple of years have seen a dip in turnover or profits,” says Desbois.
This effectively means that not everyone is eligible for a mortgage. In fact, some sectors are still blacklisted by many lenders. “Banks don’t lend to real estate professionals at all. Even if a real estate professional manages to secure a mortgage, the terms for them would be different; ie, a loan to value ratio of 50 per cent rather than 80 to 85 per cent.”
That said, it may be difficult, but not extremely difficult, to get a mortgage for such professionals.
“A lot of banks have an issue with people whose main income is commission rather than salary,” he says, adding, “Since the fourth quarter 2009 to date, we’ve had our best ten months in the three years that I have run this business. There is definitely a surge in the number of enquiries we have received so far this year.”
Cash buyers?
Three years ago, when the market was booming, real estate agents mostly focused on cash buyers as it was a hassle-free option for them. However, times have changed, and so has the market dynamics. Some real estate agents still claim they only work with cash buyers, but that could be far from reality.
“Cash buyers have already left the market and they still haven’t returned. The real estate market has evolved where the majority of clients who are looking for property are end users, and they need finance,” says Desbois.
Agents should try to be proactive and adapt to the new market dynamics, he suggests.
“Those agents who are proactive and do a good real estate job are selling, as they have adapted quickly and understood that the way real estate business is conducted is different now. A proactive agent will speak to the clients and find out what they are looking for from the finance perspective so that the clients can be introduced to a professional mortgage consultant.”
He also welcomes the increasing willingness shown by real estate agents and lenders to work with independent mortgage consultants.
“I have got banks knocking at my door, asking us to do business for them. While two to three years ago that was not the case. It took me 18 months to sign an agreement with one of the international banks. Now these banks come to us and offer discounted rates and preferential terms for their products. This is the sign of a market that is evolving [and becoming] more mature.”
Growing interest
Taking into account the number of enquiries Home Matters received in the first two quarters of this year, Desbois says, “People are buying; no doubt about it. There is a lot of interest.. – [they are] preparing and getting armed with the pre-approval to go and buy a property.”
Sceptics may differ but Desbois sees confidence starting to return to the market. Besides, conditions appear favourable with property prices still trading at 50 per cent of market highs, he contends. “We have been in the recession for almost two years now and these buyers have obviously survived that, and they see themselves here for the longer term.”
Stable employment sector
One of the factors seen as a confidence booster is the relative stability achieved by the employment sector. Desbois notes that some companies have started hiring again.
“People are looking at Dubai as a place where they can stay and build their career. The employment market has improved in Dubai. Certainly banks will take into consideration the length of employment. If someone has been in a job for a short period of time, the banks will ask for previous employment records for a period of two years. Most banks will ask for a six to 12 months employment record with your current employer. If you don’t have that, they will ask for a full two year- employment history,” says Desbois.
However, while it might not be easy for those who are new to Dubai, getting home finance could still be a possibility.
“We have secured loans for people who have been in the country for as little as ten days. If somebody is new in the country and is not under any probation with his new employer and as long as they can provide confirmation of his last two years of employment, then there is possibility for him to get a mortgage.”
Mortgage for non-residents
For non-residents, it is a virtually a non-existent market as lenders are extremely careful when it comes to this category, especially given the current economic climate.
“There are only one or two banks that will even contemplate entertaining applications from non-residents. This is an area that really needs improvement. If at all someone manages to get a mortgage, right now the maximum loan-to-value (LTV) ratio for a non-resident to buy a villa (available only for villas) is 50 per cent. That obviously reduces the appeal of the market because as an expatriate, you might see the property prices in Dubai being cheap or cheaper compared to their home countries or any other markets, but the availability of finance to buy the property is virtually non-existent.”
Mortgages for villas
“It’s often too easy to secure a mortgage for completed villas,” says Desbois. About 95 per cent of Home Matters’ business is completed villas, and this is an indicator of the current situation in the UAE mortgage sector. This is primarily attributed to the limited supply in the villa segment. “I believe the villa market is small and I think it will remain limited in the next two years,” says Desbois. There are probably ten developments where an expatriate can buy a villa or a townhouse in this country.
“If you take out the two-bedroom townhouses at the lower end and super villas at Emirates Hills and The Palm at the higher end, there are only 20,000 villas in that segment, and 85 per cent of the population cannot buy local villas. It is not a huge number. We still have enquiries from those who bought units under construction and are looking to pick up the final payments, but the banks are fairly rigid, as far as lending to under construction properties are concerned. There is some lending, but it is not widely available.”
LTV ratios and interest rates
When it comes to mortgages, the most important aspects are LTV ratios and interest rates. Have the rates and ratios come down post-crisis? Desbois says LTV ratios witnessed a sudden dip soon after the downturn, but are now on the recovery path. Certain developments still command an LTV ratio of 80-85 per cent.
“The dynamics of the market in terms of LTV ratios has changed slightly but not by a huge margin. The highest LTV ratio available for villas and master development apartments is 85 per cent for expats, 90 per cent for Emaratis,” he says. Besides, interest rates too have come down, and that should make mortgages more affordable.
“The average interest rate in the market is about 6.5 per cent whereas early 2009 the average was 8 per cent. The rates of international banks in the market are in the range of 6.5 to 7 per cent, and there are one or two promotional deals at the moment with rates as low as 5.99 per cent. These are limited offers that are not available for the long-term.”
Are mortgages within reach in the UAE? Jean-Luc Desbois of Home Matters bares the truth.
VARYING LTVs
- Arabian Ranches: Up to 85 per cent
- Emirates Living (Springs, Meadows, Lakes): Up to 80 per cent
- Green Community and MotorCity- East and West: Up to 85 per cent
- Victory Heights: Up to 80 per cent
- Jumeirah Village Triangle: Up to 85 per cent
