UAE Central Bank Limits Home Loans To Foreigners

The United Arab Emirates central bank has decided to limit mortgage loans for foreigners buying residential real estate in the country to 50 per cent of the property’s value, banking and real estate industry sources said on Sunday.

The restriction is contained in a circular issued to commercial banks, the sources said, speaking on condition of anonymity because of the sensitivity of the issue.

Central bank officials could not be contacted for comment.

The central bank’s instructions to commercial banks are often issued through circulars that are not provided to the public.

The central bank’s move appears to be an effort to ensure that another bubble in UAE real estate does not develop. Property prices plunged by more than 50 per cent between 2008 and 2011, triggering a corporate debt crisis in Dubai that forced the restructuring of billions of dollars of debt.

This year, residential prices in parts of Dubai began to recover and property developers laid plans for new high-end projects; the central bank may want to head off the wild speculation that characterised the last property boom.

However, bankers said they were shocked by the circular, which could hurt confidence in the real estate market’s recovery and hurt the share prices of property developers and banks.

“They are trying to regulate banks, but are controlling consumers by giving them limited choices,” a senior executive at a local bank told Reuters. “It will lead to less investment by end-users.”

An Abu Dhabi-based analyst said, “If implemented, this will impact on the real estate sector. After the property market improved, some banks had started lending up to 85 per cent on some projects.”

The analyst added, “It’s positive when we look at the financial and lending perspective, but the question is whether this lending cap is practical.”

A real estate industry source said that in addition to the 50 per cent cap for foreigners, a 70 per cent limit had been introduced on mortgages for UAE citizens. But it is not clear whether the caps are recommendations or absolutely mandatory, the source said.

Expatriates make up the vast majority of the UAE’s population of roughly eight million. Foreigners are allowed to buy property in designated areas.

It is not clear if the 50 per cent mortgage cap for foreigners applies to citizens of other Gulf Arab states, who have been keen buyers of Dubai property.

The UAE central bank has previously sought to regulate the lending of commercial banks to reduce risk, only to back off after the banks protested.

The central bank announced in April this year that from Sept. 30, banks would have to obey caps on their exposure to state-linked entities. Some major banks remained above the limits when the deadline passed, and earlier this month, the central bank announced it was suspending the rules while it consulted further with banks.