New UAE Mortgage Law Expected In Second Half Of 2013

New guidelines regulating property mortgages in the UAE are expected to be issued in the second half of 2013, according to Abdul Aziz Al Ghurair, the chairman of the Emirates Bank Association (EBA).

Speaking to journalists, he clarified that no rules on mortgage caps had been issued as yet, and that the central bank was currently holding negotiations with the commercial banks in the UAE.

“We received an initial notice on December 30, and it was meant to be a dialogue. We have clarified with the central bank and introduction of the new regulations was meant to be a step-by-step process.

“But because of eagerness on the part of the media, there has been an over-reaction on the issue.”

Late last month, Reuters reported that a circular sent to commercial banks by the central bank said mortgage loans for foreigners should be limited to 50 per cent of the property value for a first purchase of a home, and 40 per cent for subsequent homes. Caps for Emiratis were set at 70 per cent and 60 per cent.

The EBA has finished the first round of negotiations with the central bank and is waiting for a response on its second set of recommendations. There will also be a third set of negotiations before the new rules are issued, said Al Ghurair.

As per the consensus reached by the EBA, mortgages to foreigners should be capped at 75 per cent of the property’s value for the first home and 60 per cent for the second home. The caps for Emiratis should stand at 80 per cent for the first home and 65 per cent for the second home, said Al Ghurair.

“We also felt that in order to stop speculation on properties and minimise flipping, we would like introduce a 50 per cent mortgage cap for properties under construction,” he said.

The EBA has also proposed limiting the total lending to an individual at Dhs25 million and has asked for the exclusion of caps on Emiratis who are benefitting from government housing schemes in the country.

Currently, mortgages in the UAE amount to Dhs60 billion, out of total retail loans of Dhs500 billion.

According to some experts, the introduction of the new caps (as proposed by the central bank) will slow the revival of Dubai’s property market, but Al Ghurair said that impact on the real estate market will be minimal.

“I don’t think it [the caps] will affect the property market. Currently, only 30 per cent of the funding comes from mortgages; 70 per cent is paid in cash. So it will not be a big issue,” he said.

However, the banks are still demanding a change in caps in order to have more freedom and less regulation in the market.

“We don’t want the central bank to create a uniform policy for all the banks. We also hope that the policy will be light rather than heavy – a fully-fledged credit policy will suffocate the system,” he said.

“We are confident that we share a mutual trust with the central bank and we certainly want to encourage this dialogue.

“However, the central bank is the ultimate decision maker and can accept or reject our proposals,” he added.