Regional investment bank EFG-Hermes has published a research report on home finance providers Amlak and Tamweel. Attached is the full report.
In summary the report reveals that:
The UAE housing finance sector has benefited from a booming economy, rapid population growth in the UAE driven by net immigration, a booming real estate market, low interest rates, and a change in regulations governing the property market.
Strong demand for housing loans resulted in a short term shortage of supply of housing finance, primarily due to the funding constraints faced by Amlak and Tamweel. The true levels of demand could have been a lot higher if development projects had been launched and delivered on time.
With the bulk of units being delivered in 2007-2009, EFG-Hermes estimates a fall in occupancy rates for properties, driven by the large number of off plan buyers selling properties rather than risk owning empty housing units in a soft market. This behaviour could put downward pressure on property prices resulting in a market correction in 2008 with a softening beginning in late 2007.
EFG-Hermes estimates that the UAE housing finance sector will grow by AED14 billion in 2007, AED18 billion in 2008, AED18 billion in 2009, AED14 billion in 2010 and AED17 billion in 2011. The results gives an estimate of AED419 billion of which EFG-Hermes believes AED64 billion is likely to be funded through credit between 2007-2011.
Amlak is the largest player and currently accounts for 35% of the housing finance market. It provides the most varied range of financing products and has successfully penetrated both the primary and secondary markets. Should Amlak receive a banking license in 2007, we believe the company will be able to grow faster and more profitably. However, because it is fairly mature, we believe that loan growth going forward will be slow (CAGR of 29% 2006e-2011e) relative to historic growth rates.
Tamweel started operations in 2004 by offering products at competitive prices which allowed it to capture a 25% market share in just two years. We believe that going forward, Tamweel has the capacity to defend its market share and grow its
loan book aggressively as the company is extremely under-geared. We believe Tamweel would benefit the most from being granted a banking license and the associated lower cost retail deposits as it currently suffers from a very low net interest spread.
