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UAE Central Bank seeks to fix mortgage cap
Abdul Basit / 17 March 2013
The Central Bank of the UAE on Saturday indicated speedy finalisation of proposed regulations on mortgages, liquidity, and banks’ loan exposure.
The most important regulation for banks operating in the country is a cap on mortgage lending that was proposed in December last year to prevent speculation in property market, according to a senior banker.
Chairman of the UAE Central Bank board Khalifa Mohammed Al Kindi chairing the meeting. Deputy Chairman Khalid Juma Al Majid, Governor Sultan bin Nasser Al Suwaidi, Deputy Governor Saeed Abdullah Al Hamiz, Assistant Governor for Banking Supervision Saif Hadif Al Shamsi, board members Younis Haji Al Khoori, Khalid Mohammed Salem Balama, Khalid Ahmed Al Tayer and Mohamed Ali bin Zayed Al Falasi and a group of senior central bank staff attended the meeting. — Supplied photo
The central bank’s board, in its recent meeting, reviewed a report on the recent developments relating to real estate mortgage loans regulation, along with a comparative study through which the board was able to review best experiences and international practices to be availed of in this area.
“The board noted that the proposed real estate financing ratios are used by many countries, and are often used for controlling supply and demand, and as a controlling tool during economic booms,” the central bank said in a statement.
Last December, the central bank surprised UAE banks by issuing a circular to banks saying it intended to restrict mortgage lending to a loans-to-value (LTV) ratio of 50 per cent for first-time foreign property buyers, and to 40 per cent for second or subsequent real estate buyers.
For UAE nationals the cap was 70 per cent LTV for first-time buyers and 60 per cent for subsequent properties. “The objective of imposing the caps was to reduce speculation in the market and reduce risk exposure for the banking sector,” the central bank said at the end of 2012.
Then the Emirates Banks Association (EBA) made a counter proposal to the central bank’s cap plan, suggesting a LTV ratio of 75 per cent for initial property purchases by an expatriate and 80 per cent by UAE national, and 60 per cent and 65 per cent for the second and subsequent properties bought by expatriate and UAE citizens, respectively.
EBA chairman Abdul Aziz Al Ghurair described mortgage caps beneficial for both customers and banks, but said Dubai’s banks would likely be more affected than banks in other emirates if restrictions were too tight.
Only about 30 per cent of all property transactions in the Dubai are conducted using mortgage loans, Al Ghurair, who is also chief executive officer of Mashreq, told reporters on January 28. While a relatively small proportion, this still represented around $12 billion worth of transactions in 2012, according to the Dubai Land Department.
Earlier this year, the central bank again surprised the banking sector in the country as the Governor Sultan bin Nasser Al Suwaidi said: “What was published was not an order, it was a notification. The system that will be put in won’t necessarily be according to the per centages that we published.”
Al Suwaidi also said any ceiling on mortgage lending would not be introduced for at least six months in order to allow for consultations with banks.
The announced welcomed by Dubai bankers who had been concerned the tight restrictions originally proposed could limit lending growth just as the real estate sector is showing signs of recovery in certain sub-sectors.
In mid-January, credit ratings agency Moody’s said an improvement in the property market was important for the prospects of Dubai’s banks.
In a recent report, property consultancy firm Asteco said that after recording a robust growth in villa and apartment prices in 2012, Dubai is on track to sustain strong leasing and sales demand in the first half of 2013. Quality residential developments in Dubai ended 2012 with a strong fourth quarter performance to put the average annual increases at their highest since 2008, the property services company added.
The central bank during its meeting also discussed a number of issues relating to liquidity levels and ratios aimed at achieving a sustainable balance between deposits and loans at banks operating in the UAE.
“The board instructed speedy finalisation of the review of all articles of the said regulations to expedite approval and ensure timely implementation thereof,” according to the statement.
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