Credit crunch halves UAE mortgages, deepens realty slump
Posted on 11 November 2008 with no comments from readers
Far tighter mortgage finance this autumn is driving property sales down in the UAE. Abu Dhabi Commercial Bank told Emirates Business 24/7 that mortgage volumes have halved while applications are down from 35-45 to 15 per month.
ADCB has also increased its mortgage rates from 7.5 to 9.5 per cent and dropped its loan-to-value ratio from 90 to 70 per cent. The Emirates Inter-bank Rate (Eibor) has appreciated significantly above Libor, making UAE home loans particularly expensive.
It is the same story across the local banking sector. HSBC has cut LTVs from 85 to 60 per cent on apartments, and 70 per cent on villas. Lloyds TSB will only make loans on villas, and not apartments.
Low LTVs
The local mortgage companies Tamweel and Amlak have cut LTVs to 75 and 65 per cent respectively, and are in the process of merging their operations. Both raised their money in mortgage securitizations that are now virtually impossible in the current market.
Local liquidity has become very tight, as the UAE has suffered an exodus of cash from the falling stock markets and over the summer from revaluation speculators who have withdrawn their money. Ironically the Governor of the Central Bank said yesterday that there was now far more enthusiasm for the GCC single currency – and that could well mean a revaluation is back on the agenda.
However, the mortgage market in the UAE is very small by comparison with most housing markets of the world, and could indeed be the smallest. The majority of local housing transactions are made in cash, and so the tightening of housing credit is not the end of the world.
Boom over
It is, however, clearly the end of house price increases for the time being, and for people who want to sell out in a hurry then big discounts will be necessary. For off-plan apartments, particularly in the less central locations, it is probably impossible to sell at any price because the buyer will not be willing to take the risk of future price falls.
Whether it proves to be the case that the UAE is a case of last-in, first-out in the global real estate slowdown remains to be seen. A government initiative to keep credit flowing to the housing sector would seem necessary to avoid a true real estate crash in the emirates which would be damaging to the long-term interests of the country as an investment safe haven.
That said the problem is small enough and the solutions easy enough to implement for the government to avoid the kind of property meltdown now happening in developed markets. Indeed, the UAE could be in a position to attract new investment from these troubled countries if it plays its hand correctly.
Then the market shakeout of the next few months would emerge as a bull-market correction and not a crash, and those panicking and selling out for a big discount would look rather foolish.
Order my book online from this link
no Comments posted by readers:
Jeddah; November 12, 2008: Emaar Properties has unveiled a pioneering ‘To Own’ scheme aimed at making it easier for customers to purchase property in Dubai.
With the innovative ‘To Own’ scheme, Emaar is initially rolling out two programmes – ‘Plan to Own’ and ‘Rent to Own,’ both of which will enable customers to own property under more affordable terms within Emaar’s world-class master-planned communities in Dubai.
The scheme reflects Emaar’s commitment to extend further support to customers and be a stronger facilitator of property purchases. Domestic demand for real estate continues to outstrip supply in Dubai. Emaar’s new programmes build further on the real demand for property, which has now positively shifted towards an end-user market.
The ‘Plan to Own’ programme will offer the flexibility of paying 25 per cent of the property price after the handover and over five years, making it possible to bridge the current gap due to lower loan to value ratios offered by banks and financial institutions.
The ‘Rent to Own’ programme facilitates easier property transactions in prestigious residential properties such as those within Downtown Burj Dubai by providing customers the flexibility of living in a property, experiencing the qualitative difference provided by Emaar and make informed purchase decisions.
Both leverage on Emaar’s market-leading position in the real estate sector as the pioneer of master-planned communities. The programmes are aimed at easing the financial position of potential customers by offering them an extended payment plan with annual payments for 5 years.
Mr Issam Galadari, Chief Executive Officer, Emaar Properties, said: “Domestic demand is one of the key drivers of Dubai’s real estate sector, and through the ‘To Own’ scheme we are leveraging on our market-leading position to support our customers and offer them more access to property purchase.”
He added: “The ‘Plan to Own’ and ‘Rent to Own’ programmes are aimed at further strengthening the property sector by facilitating easier purchases and making property more affordable for our customers. By providing customers the option of securing up to 25 per cent extended payment option, Emaar is stepping in to support our customers. These extended payment plans reflect on our commitment to them.”
As per the ‘Plan to Own’ programme, Emaar will help potential home-owners and commercial customers who can qualify for a mortgage through a bank to bridge the gap by extending their payment plans. Emaar’s extended payment plan of up to 25 per cent of the property value will be paid back by the customer in single annual installments for five years, after moving into their new homes. The first payment will begin only one year after receiving their property.
With the ‘Rent to Own’ programme, tenants can adjust 100 per cent of the first year’s rents as home finance if they decide to purchase the property within ten months of living in the home. It gives them the unique opportunity to rent, move in, assess the quality of the property and make an informed property purchase decision.
The property price will remain fixed for a period of one year, and customers will have the option of acquiring the ‘Plan to Own’ programme if they decide to buy. During the rent period, tenants will have the first right to buy the property. Tenants who do not wish to make the purchase still can enjoy the option of renewing the tenancy. The minimum rental period is for one year.
Potential customers can visit Emaar’s sales centres in Emaar Business Park, Downtown Burj Dubai and Abu Dhabi for more details and explore the rental and purchase options from 9am to 6pm – 7 days a week. For more details, call toll-free: 800-EMAAR (800-36227) or log on to http://www.emaar.com.
Emaar has a strong development roster of master-planned communities including Downtown Burj Dubai, Arabian Ranches, Dubai Marina and Emirates Living, which are pioneering master-planned communities with established neighbourhoods.
Several hundred homes have been handed over in the four communities. Described as the ‘new heart of the city,’ Downtown Burj Dubai already supports several residential communities and is one of the most sought-after home and office destinations in Dubai. The 500-acre neighbourhood features Burj Dubai, the world’s tallest building; and The Dubai Mall, one of the world’s largest shopping and entertainment destinations, which opened doors recently.
-Ends-