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Banks ease up on lending

Rocel Felix / 18 June 2009

DUBAI - In a fresh sign that property prices in the UAE may have hit bottom, more banks are relaxing their lending limits for mortgages and are seeing an increase in their overall mortgage business.


HSBC now lends up to 75 per cent of a property’s value, whereas until April it lent only as much as 50 per cent of the value. Other banks have followed in HSBC’s footsteps. Mashreq Bank has raised its mortgage lending limit to 75 per cent from 70 per cent. Standard Chartered too now lends up to 75 per cent.

The Dubai Islamic Bank on Wednesday announced one of the most liberal lending limits yet: up to 80 per cent for mortgages taken by expatriates with a  minimum monthly salary of Dh8,000 per month. The bank’s limit for Emerati citizens is even higher, at 90 per cent for non freehold properties.

This gathering trend suggests that more banks now believe that property prices in the country are stabilising. The banks, in turn, are injecting much-needed liquidity into the stricken real estate sector.

However, bankers say that the pace of lending this year is unlikely to be as aggressive as it was before Dubai’s property market began to collapse in late 2008, as financial instititutions still worry about the impact the economic slowdown is having on borrowers.

Jean Luc Desbois, managing director of Dubai-based mortgage consultancy firm Home Matters, said that transactions and inquiries are at their highest since November 2007.

“Since the middle of February, we have seen lot of interest from end users because price levels are affordable. Unlike last year, the gap between agreed prices and bank valuations has narrowed,” he said on Wednesday at a forum of the Dubai Property Society. “Banks are becoming more comfortable with the current market prices. It is most likely that the valuation would be closer to the agreed sale price.”

Noor Islamic Bank said its total mortgage loan value has risen since January by 40 to 50 per cent.

“Things are definitely improving compared to what we have seen in the first quarter. I expect lending to further ease up, possibly as the year progresses,” said Fahd Reaz, senior product manager in personal and home finance at Noor Islamic Bank.

Mortgage rates now range from 6.5 per cent to 9.5 per cent, and they average 7.75 per cent to 8 per cent. These rates are are not much different from last year’s levels.

Dubai-based broker Landmark Advisory said that its mortgage transactions grew by 30 per cent from April to May of this year. They rose by only 17 per cent during the longer January-to-March period.

“We will see a lot more liquidity, especially if oil prices keep going up. Even at $70 a barrel, that translates to a lot of income,” said Charles Neil, Landmark Advisory’s chief executive officer.

The rise in oil prices over the last five years fueled much of Dubai’s property boom. But while lending by banks has resumed, credit growth, especially in the property sector, will be more subdued as some banks — chastened by the property market collapse—worry about potential defaults.

“There is still some degree of cautiousness due to the uncertainty in the job market. Banks will always keep in mind about what will happen to borrowers,” said Sohail Akbar, head of sales and distribution service of Tamweel PJSC.

Noor Islamic Bank’s Reaz said banks are still wary of lending to buyers of off-plan properties. This practuce is estimated to have declined by 50 per cent in Dubai during the property slump, he said.

“Banks are lending, finally. But at the end of the day, banks will be wanting to look for the right customers, they will run their checks and balances and give credit not to low leverage people but (to) those that can substantiate their payments in the coming years,” said Muhammad Faisal Iqbal,  head of secured lending business at Barclays Bank PLC.

Email: rocel@khaleejtimes.com




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