UAE acts against bubble threat with new mortgage laws
The UAE Central Bank issued on Tuesday a key mortgage cap regulation streamlining new bank lending norms in an attempt to ward off the pitfalls of uncontrolled lending to property buyers.
The long awaited rules, based on loan-to-value ratio, will seek to limit home loans for expatriates to 75 per cent of a property’s value for a first investment of less than Dh5 million. For Emiratis, the first time borrowing limit is kept at 80 per cent of the property value of less than Dh5 million.
For a property worth more than Dh5 million, the loan cap for expatriates is set at 65 per cent and for nationals at 70 per cent of the purchase value.
For second and all subsequent property purchases, expatriates will be eligible to take loans up to 60 per cent of a property’s value while UAE nationals are allowed to take up to 65 per cent, regardless of value of the property.
The rules, which have been on the drawing board ever since the meltdown of the property sector a few years ago, also seek to limit the period of mortgages to a maximum of 25 years. For expatriates the maximum age at the time of the last repayment is set at 65 years and for UAE nationals at 70 years.
A Central Bank statement said that all mortgages for off-plan properties should be restricted to 50 per cent, regardless of purpose, value or nationality.
The new regulation also stipulates that monthly repayments cannot exceed 50 per cent of a customer’s monthly income, and the total loan amount should not surpass seven years’ annual income in the case of an expatriate and eight years’ annual income for a UAE national.
The new rules will come into effect a month after they are published in the Official Gazette in November, the statement said.
“The Central Bank is seeking to ensure that banks and other financial institutions have and maintain effective business standards and control frameworks in place for the granting of mortgage loans,” Central Bank Governor Sultan bin Nasser Al Suwaidi said in the statement.
Sultan Butti bin Mejren, Director-General of the Dubai Land Department, described the new set of rules as an important step in the right direction.
“This is a regulation to the most vital part of the development of the real estate market which is currently witnessing a new wave of growth. Setting the highest and the lowest ceiling for lending contributes to protecting the market from falling into the errors of uncontrolled lending as well as encourages lending institutions to operate in the market once again but with a clearer vision and with mechanisms in place that protect the concerned parties from the risk of default in payments,” said Mejren.
The Land Department chief said the new regulation would be a contributor to further growth in the market and is a significant step in increasing clarity and transparency.
“It will also enhance confidence in the real estate sector, and will attract new local and foreign financial institutions, therefore increasing their numbers in the market which will create positive competition and give investors more options that will benefit them,” said Mejren.
“The announcement by the UAE Central Bank sets out the system by which the 51 banks in the UAE should operate when providing loans for housing to Emiratis and UAE-based resident expatriates. This new system does not include any guidelines for banks to provide a pragmatic and practical non-resident mortgage, which we believe is required to attract a more international investor base,” said Ziad El Chaar, managing director, Damac Properties.
“While we welcome all efforts by the UAE Central Bank to increase regulation and offer further security in the Dubai property market, we believe there is also a requirement to provide overseas clients the opportunity to purchase a home in the UAE and we call on all banks to implement such a facility with easy, straightforward application requirements,” said Chaar.
The UAE Central Bank tried to introduce stricter rules in 2012 as part of a drive to reduce risks of another property bubble. But it suspended the move after banks pointed out such sever regulations limiting mortgages to 50 per cent for first-time foreign buyers and 70 per cent for locals would hurt their business.
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