Dubai investors put off by mortgage cap rule

Experts fear Central Bank’s ceiling on lending will stifle real estate growth in Dubai

Image Credit: Supplied photo
Realty slow down: Experts say the new lending cap for expats will have a negative impact on the realty sector which has been showing signs of revival in recent times.
06 XPRESS

Dubai: New restrictions on mortgages is putting off property buyers in Dubai, realty experts told XPRESS.

The mortgage credit for expats has been capped at 50 per cent for the first property and 40 per cent for the second and subsequent units, according to a Central Bank circular issued to banks on December 31, 2012.

For Emiratis, the cap is 70 per cent for the first unit and 60 per cent for subsequent homes.

Manoj Gur of Blue Water Real Estate said: “This is definitely going to put the brakes on the real estate growth in Dubai. The end-users are comfortable with an LTV (loan to value) lending ratio of 70 per cent. Capping it at 50 per cent will make it very tight for buyers. The Central Bank must ease the capping ratio to at least 70 per cent. The interest was picking up in the market. but now the investors are disappointed.”

Craig Plumb, Head of Research, MENA, Jones Lang LaSalle reckons the lending restriction could have a negative impact.

“This is a positive move in the long-term. However, for people looking to buy properties immediately, this could have a negative impact,” he said. “It could cause a slowdown in real estate growth this year. Properties with high or low price tags find cash buyers, but mid-priced ones ranging between Dh2 million and Dh5 million are likely to be the worst hit.”

The fears may have already come true for Indian expatriate Ramesh Talwar who owns three homes in Dubai — a three-bedroom apartment in Jumeirah Lakes Tower (JLT), a three-bedroom townhouse in The Lakes and a two-bedroom apartment in Dubai Silicon Oasis, all of which have mortgages.

When the real estate market started to pick up Talwar decided to sell them and buy a large four-bedroom property in Jumeirah Park. Now he has to put off the idea completely. “It’s hard to find a buyer who can cough up 50 per cent down-payment. For now, I have decided to hold onto my investments, sit tight and hope for things to change,” he said.

Change of plans

Even investors like Sathish Kendra who got a pre-approval for 70 per cent lending are reluctant to buy. “My mortgage was approved just days before the Central Bank’s new regulation. But I am not interested anymore,” said Kendra.

“The lending restriction will have a major impact on the property market. Not many people would want to put large amounts of money in real estate. I have shelved my plans for now,” he said.

Most banks XPRESS spoke to confirmed they have started abiding by the new lending regulation.

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  • Clarence S Lewis

    Jan 17, 2013 1:59

    The Central Bank's action indicates a good move which will create stability in the real estate market. The speculators will be out and only genuine investors will be in. As of now, some big banks are saddled with a huge real estate debt on themselves resulting from uncontrolled lending mortgages during the earlier boom. The above action by the regulator will help to clean out the market, which in turn will create a healthy boom for our wonderful city of Dubai.

  • George

    Jan 17, 2013 1:05

    This is an excellent move by the Central Bank. In order to safeguard the property market from another bubble this will guarantee that people who are buying the properties are more likely to be the end users. In the past people paid 5% down payment on so many houses when they knew very well that they couldn't afford them and their greed caused a market crash.

  • george

    Jan 17, 2013 12:23

    Zero planning... I thought they would have seen the impact on banks and brokers and discussed the same with them before applying... I see it revised by the end of January.

  • Hussain Fahmy

    Jan 17, 2013 9:55

    Sensible approach to avoid another bubble. A deterrence to speculators, flippers and market makers.

  • Ejaz Ahmad

    Jan 17, 2013 9:25

    This is a very good step taken by the governemnt as it will protect all the parties -- the end users, the bank and the builders and nobody will go to jail beacsue of bounced cheques. Everything will be under control now. We have seen how people lost their hard earned money in 2008 when real estate collapsed, which entirely happened becasue of the traders who were only interested in flipping the properties and the realty prices skyrocketed. So now it is the best measures taken by the governent which is good for all parties.

  • Marc Jons

    Jan 17, 2013 8:29

    Very strange decision at a very strange time. Remember when the crisis started the authorities started the 'residency visa' for freehold owners, which was a killer blow to the real estate market at a time when it desperately needed a boost! Well it seems it is time now for a repeat of the same, let's kill the real estate market for good!

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Latest Comment

The Central Bank's action indicates a good move which will create stability in the real estate market. The speculators will be out and only genuine investors will be in. As of now, some big banks are saddled with a huge real estate debt on themselves resulting from uncontrolled lending mortgages during the earlier boom. The above action by the regulator will help to clean out the market, which in turn will create a healthy boom for our wonderful city of Dubai.

Clarence S Lewis

17 January 2013 16:35 jump to comments