New UAE Real Estate Bank key to reviving local economy
Posted on 23 November 2008 with no comments from readers
The UAE authorities have put the creation of a new UAE Real Estate Bank on to a fast track. The bank will be formed by a merger of local home loan giants Amlak Finance and Tamweel under the name of the Real Estate Bank, a government conduit for housing loans to nationals.
A ministry statement said: ‘The new entity will provide a strong growth platform for real estate financing in the UAE’. But the new bank can not come fast enough. The UAE real estate market has ground to a halt this autumn with the lack of financing a key issue in the marketplace.
Amlak has actually stopped all new home loans as it has run out of money, which it used to raise from the now dead securitization market. Tamweel must also be running low on cash to lend. Other home mortgage institutions in the UAE have tightened their lending criteria so much that obtaining home finance is impossible for most borrowers.
Affordable interest rates
The new UAE Real Estate Bank has to break this logjam with new home finance at interest rates that make it competitive with rental costs, and with terms that borrowers can afford. If it takes its own funding directly from the UAE government’s coffers then highly competitive interest rates should be achievable, and if other banks can not compete for a while that is their problem.
The more difficult question is: who should get the new home loan money? Will this be liberally spread across the whole of the UAE real estate market, or concentrated within certain segments?
There is an argument for initially restricting this new source of funding to completed units only, in order to allow a correction and consolidation in the off-plan sector. Certainly showering money on to a collapsed bubble is the least effective use of new funds, that is what is being tried and failing to work in the US.
It is by focusing finance that valuations can be protected and remember that the real estate market is led by the value of completed homes, and in the long run the whole market will benefit.
Promotional offer?
The new UAE Real Estate Bank also needs to consider some kind of promotional offer for its launch: say a very special deal on the first 1,000 new loans. This might seem unfair to existing home owners with mortgages at higher rates but they will benefit from the market support.
And by underpinning the real estate sector with home loan finance at reasonable cost the whole UAE stock market should find a bottom and even recover a little. The down pressure on real estate and construction related shares will be reduced.
Overall, the new UAE Real Estate Bank is to be strongly welcomed. But what it needs is plenty of imagination and vision by its management to make sure it achieves the best impact on the market, and is not a waste-of-money like the support being given to US banks.
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From Emirates Business 24/7
By Parag Deulgaonkar on Monday, November 24, 2008
The UAE Government yesterday approved a merger between UAE Real Estate Bank and Emirates Industrial Bank to create a massive entity named Emirates Development Bank which also includes Dubai-based mortgage lenders Tamweel and Amlak Finance.
This implements a strategic decision made by the Cabinet under the chairmanship of His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, earlier this year at his retreat in Jebel Dhanna.
The Ministerial Service Council approved the merger at a meeting chaired by Minister of Cabinet Affairs and Council Deputy Chairman Mohammed Abdullah Al Gergawi, Wam reported. The initiative comes a day after Amlak Finance and Tamweel were merged into UAE Real Estate Bank.
The federal government will inject new capital in the merged entity and acquire a sizeable stake, Emirates Business has learnt.
The new entity will be allowed to accept deposits from customers and grant mortgages and industrial loans. Work has already started on consolidating the branch networks of the two Dubai-based mortgage companies. According to a source, the deal will be beneficial for shareholders of Amlak and Tamweel, which have a combined market value of Dh2.5 billion.
Trading in the two companies’ stocks was suspended yesterday after the Finance Ministry said it would supervise their merger to ensure a fair valuation and protect shareholders. Amlak and Tamweel officials refused comment.
“The merger of Amlak and Tamweel under the supervision of the Real Estate Bank suggests that both companies will be covered by federal funding,” said Raj Madha, a banking analyst at investment bank EFG-Hermes.
The merger will help solve three main issues: liquidity, funding and solvency, he said.
Robert McKinnon, Managing Director of Research at Al Mal Capital, said the merger will be beneficial in the long term and will help address the funding needs of the new entity.
“Securitisation deals have slowed down and allowing the new company to accept deposits will help it get access to cheaper funds. It will certainly help in the long term.”
Amlak Finance Chairman Nasser bin Hassan Al Shaikh said at a recent bankers’ lunch that Amlak and Tamweel’s “business plans are not sustainable and have to be changed”.
“These companies need to have access to retail deposits. They don’t have to become banks but something similar to the savings and loans model in other countries,” Al Shaikh said.
The UAE Real Estate Bank began operations in 1999 with capital of Dh2bn, fully subscribed by the national government. In 2007, it had Dh3.79bn in assets, Dh1.06bn in equity and Dh85 million in profits, according to its website.
UAE Minister of Finance and Industry Sheikh Hamdan bin Rashid Al Maktoum is its Chairman.
The Ministerial Service Council also approved labour accommodation standards and reviewed the accounts of a number of public bodies and establishments and approved a number of appointments.