Real estate loans up 15% in 2010 to Dh163.19bn
In a sign that banks in the country are beginning to see property valuations at reasonable levels, real estate mortgage loans increased by over 15 per cent in 2010, data from Central Bank of the UAE shows.
Bank mortgages in the UAE rose by Dh21.47bn last year, from Dh141.71b at the end of 2009 to Dh163.19bn at the end of 2010, according to Central Bank’s Statistical Bulletin. By comparison, mortgages rose Dh15.88bn, or 12.6 per cent, in 2009, much lower than the 123 per cent increase in 2008 and a 100 per cent jump in 2007.
Anecdotal evidence too suggests that the financial sector is regaining confidence in the UAE’s real estate market, with a number of local and international banks re-entering the mortgage lending market with lower interest rates.
Last week, international banking giant HSBC announced that it is offering a revised mortgage lending rate of 5.49 per cent for UAE buyers looking to buy completed residential property or wishing to switch their existing mortgages from other providers.
Standard Chartered, another international bank, too said last month it would bundle UAE mortgages with pre-approved personal loans of up to Dh250,000 and credit cards with no annual fees.
Earlier this year, Dubai-based Islamic lender Tamweel announced its aggressive intentions by offering rates as low as 4.99 per cent to entice new customers and those wishing to switch their loans from other providers.
Until then, Abu Dhabi Finance, with its interest rate of 5.75 per cent, claimed to be offering the lowest rate among the country’s home finance lenders. However, with more banks entering the market with lower interest rates, borrowers are already eying a new price war in the country’s mortgage market.
Nevertheless, having gone through a massive price correction in the past two years, lenders are cautious in their approach and the loan-to-value ratios remain prudent. HSBC’s rates, for instance, are valid only for completed properties and for borrowers willing and able to pay a 40 per cent down payment for the property, while Tamweel’s lowest rate offer is for borrowers with the ability to pay half the property’s value in down payment.
At the same time, to encourage genuine end-users, banks are reducing the arrangement or processing fees on mortgages. While Tamweel is completely waiving off the processing fees for those switching their existing mortgages from other lenders, HSBC premier customers will receive a 75 per cent discount on arrangement fees and HSBC advance and personal banking customers will receive a 50 and 25 per cent discount, respectively, on the arrangement fees.
At an event held last month, Sultan Butti bin Mejren, the Director-General of the Dubai Land Department, said the regional real estate market was poised for a comeback after slowdown witnessed in the past two years. “Though still in its infancy, the Arab real estate sector is proving itself as the most capable market in terms of recovering from the impact of the global crisis,” he said.
The UAE is mulling over the introduction of a new mortgage system, based on the one used in Denmark, in a bid to stimulate recovery in the market. The proposed model involves private residential mortgages being funded by the issuance of standardised bonds, creating a large and liquid mortgage bond market.
According to Dr Nasser Saidi, Chief Economist and Head of External Relations, DIFC Authority, the new system could be up and running in 18 months. “We have proposed the set-up of a mortgage securitisation mechanism to create a market similar to the Danish mortgage market,” he said, adding the new model would “reduce the risk and exposure of real estate developers and lending institutions”.
Another idea mooted by the DIFC is that of establishing an Emirates Mortgage Guarantee Corporation, which would provide insurance coverage to eligible institutions, banks and specialised mortgage credit providers of a maximum percentage amount of the total mortgage value, thus spreading risk and stimulating market liquidity.