UAE to Limit Expat Mortgages at 50%

The UAE Central Bank has announced that they will now limit mortgage loans for foreigners who wish to buy property in the region to a maximum of 50 percent of the property’s value.

The reports are “sending shockwaves across the country’s banking sector”, according to a report published on Monday on the Emirates 24/ news website.

The restrictions, which were announced in a circular that was issued to commercial banks in the UAE earlier this week, are aimed at restraining housing prices and preventing the development of a further property bubble in Dubai. However, many economists have since warned that the measures may prevent full recovery in the property market and damage property developer’s share prices.

Between 2008 and 2011 property prices plunged in Dubai, causing a major debt crisis that forced the restructuring of billions of dollars of debt in the popular expat destination. However, the prices of residential real estate have started to recover in recent months and many new projects have been launched.

In addition to the 50% mortgage cap that has been implemented for expats, UAE citizens will also see their mortgage loans capped at 70 percent. However, as yet, there is no real confirmation available concerning whether the mortgage caps are mandatory or suggested and whether it includes citizens of other gulf states. Despite this, many banks have already instructed their mortgage sales teams to replace the 70 or 80 per cent loan-to-value ratios (LTV) with 50 per cent offers. Other banks have even revoked the pre-approvals that property hopefuls have already secured from banks.

“There was no consultation on this…it was unilaterally decided by the central bank,” said one Abu Dhabi commercial banker, who declined to be named because of the political and commercial sensitivity of the issue. “It makes no sense to limit lending to expats when the property market has just begun to see a revival.”

News of the limit on expat mortgages coincided with the official unveiling of the 2013 budget by the UAE Government, which included a rise in Government spending of almost AED2bn, to AED34.1bn.

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