Dubai Mortgage Plans: Propelling Dubai Real Estate Industry to Stability

At the base of it, mortgage loans are a good thing that allow people with limited means to acquire property by paying installments over a preset time. Salaried individuals, in particular, avail this option all over the world to buy property that would otherwise be beyond their reach.

But mortgage loans also have a dark side. In the 2008-2009 global financial crisis, sub-prime mortgages were largely to blame in the collapse of housing and real estate markets in the US, and the lucrative real estate market of Dubai, UAE also suffered a crash.

Now, as property prices rise across Dubai anew, the speculations of a bubble leading to another market crash have also surfaced. These speculations do not come as a surprise, since the entire real estate industry was hit hard by the financial crisis that came about as a result of a similarly rapid increase in property prices in 2008 and 2009.

The market crash was a result of mortgage plans introduced by various banks that were not looked through properly. Investors would buy a property on the maximum loan amount and then quickly sell the property for a profit and transfer the mortgage on to the buyer, a practice called flipping.

With an average of a 90 per cent mortgage loan over property valued at AED 5 million and a small property transfer fee, something of a domino effect began that ultimately caused billions in losses to all involved.

Preempting a repeat, the Central Bank of the UAE has now issued new mortgage loan regulations to all banks to ensure long-term stability for investments in real estate.

These new restrictions laid out in the regulations by the Central Bank of the UAE now clearly depend on two factors, the first being the buyer’s citizenship and the second being whether the purchase and construction on the property is for the first, second or third time.

Per the new regulations, all UAE nationals buying or building a property for the first time will be allowed 80 per cent mortgage loan on a property valued at AED 5 million or less. If the UAE national is building a property valued at more than AED 5 million, they will only be allowed a 70 per cent mortgage loan. Similarly, if the UAE national is building a property for the second or third time – irrespective of the property’s value – they will only be allowed a
65 per cent or 50 per cent mortgage loan respectively.

The Central Bank of the UAE has also drafted a mortgage loan plan for expatriates and non-nationals seeking to build property in Dubai. All mortgage loan plans for non-nationals have been placed in three levels, just as the ones designed for nationals are.

Under this plan, all non-nationals buying or building a property for the first time are allowed 75 per cent mortgage loan on a property valued at AED 5 million or less, while they can only get a 65 per cent mortgage loan on property valued at more than AED 5 million. Building a second or third time gets non-nationals only 60 per cent or 50 per cent mortgage loans respectively, regardless of the property’s value.

It is because of such revisions of mortgage loan rules that Dubai’s real estate sector has begun to recover the losses of 2008-2009 over the last two years. But the sale and purchase prices for residential properties in Dubai rose by double digits in 2012, and industry watchdogs grew concerned that history might repeat itself.

However, a recent market report by leading UAE property portal Bayut.com states that these speculations are unnecessary. The report points to the fact that property prices are far more stable than they were in 2008, and that state regulatory bodies had moved quickly to discourage flipping by strategically increasing taxes.

These moves suggest that the property market is heading in the right direction, towards greater oversight and tighter regulations. These regulations seem enough to validate the stable rise in Dubai’s property market at the moment as the real deal instead of a heat-up that might ultimately lead to a crash. People can breathe easy.

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