New rules cap mortgages for expats in UAE at 50pc

Central bank action aims to reduce exposure to risk of accumulating bad loans, say sources

PUBLISHED : Wednesday, 02 January, 2013, 12:00am
UPDATED : Wednesday, 02 January, 2013, 6:42am

The central bank has issued guidelines that restrict mortgages to expatriates at 50 per cent of the value of the property, according to banking sources.

Home loans to United Arab Emirates citizens that banks may provide could be as much 70 per cent of the value of the property for the first house and 60 per cent for a second house, two bankers said.

Expatriates could get mortgages of as much as 40 per cent of the value of a second property, the bankers said. No one was available at the Abu Dhabi-based central bank to comment.

"We will be in discussions with the central bank on the implications of the circular for mortgage lending and the real-estate industry and how the new rules will be implemented," Suvo Sarkar, the head of retail banking at Emirates NBD, the UAE's biggest bank by assets, said.

The central bank is tightening regulations on the country's 51 banks in a bid to reduce "concentration risk" after bad loans surged since the global credit crisis. Property prices in the UAE, the second-biggest Arab economy, fell 65 per cent from their peak in 2008 after the crisis pushed banks to cut back on mortgage lending and speculators fled.

No date for implementation of the policy was specified in Sunday's circular, according to the bankers. There were no loan-to-value limits under the earlier policy and some banks provided loans of as much as 95 per cent of the value of the property.

Dubai sparked a building boom, when it allowed foreigners to buy property in some parts of the emirate in 2002. The property crash pushed Nakheel, the developer of Dubai's palm-shaped islands, to the brink of bankruptcy and led former parent Dubai World to delay payments on US$15 billion in loans.

Property prices in Dubai have crept up this year as the economy recovered and banks revived mortgage lending. Prices in the emirate were also helped by its safe-haven status as pro-democracy protests swept much of the Arab world.

In April, the central bank announced rules that required banks to not lend more than 100 per cent of their capital to local governments and the same to state-related entities. Last month, the central bank postponed the implementation of the rules that came into effect in September pending a review.

Bank lending in the UAE, a country with a population of 8.3 million, rose 3 per cent in the 10 months to October. Foreigners make up more than 80 per cent of the population of the emirates.