Should non-citizens in the UAE also be given 100% home loans? Why the answer is yes.
The recent announcement that UAE nationals will be able to take out home loans worth 100 percent of the property value should be extended to residents as well.
At first it seems absurd to allow customers to take out a mortgage without a deposit. It’s akin to buying a house with a credit card and then being given an extra-long instalment plan to pay it off.
In most parts of the world I would argue a 100 percent home loan is ridiculous: if a mortgagee cannot save a deposit then how will they be able to put aside the loan repayments each month?
But in Dubai, mortgage repayments are in many cases about equal to or less than renting the same property.
So it makes sense to be paying the same amount each month for your housing but actually paying off an asset rather than your landlord’s. The trouble is saving the deposit at the same time as paying the ‘dead money’, otherwise known as rent.
The Central Bank is on the verge of limiting mortgages to 75 percent of the value of a property for first-time foreign buyers and 80 percent for local citizens.
The idea, first raised in December with far lower limits, was in response to the property crisis that hit in 2009-10, causing prices to fall by up to 60 percent.
There is validity in the proposal to force bank customers to prove they can save before taking out a home loan potentially worth millions of dirhams, but in Dubai up to 80 percent of property transactions are done with cash anyway, with investors from all over the region viewing the international emirate as a far safer investment option.
With sale prices rising by an average 20 percent in a year, so too are rents.
The Dubai government this week backed Dubai Islamic Bank to offer UAE nationals 100 percent home loans in partnership with the Mohammed Bin Rashid Housing Establishment, which provides land grants and financing to locals to purchase subsidised housing.
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