Check out our Managing Director Renan Bourdeau’s column in yesterday’s Khaleej Times newspaper talking about the controversial mortgage cap proposed by the Central Bank.
What do you think about it all? We are keen to hear your comments!
MORTGAGE CAP REGULATION MAY SHAPE MARKET FUTURE
It seems we didn’t have to wait long for the first big property industry news story of 2013. The Central Bank’s recent ruling that mortgages for foreigners will be capped at 50 per cent (and 70 per cent for nationals) caught everyone off guard and has been the cause of much discussion in the past week.
While we are all in agreement that provisions need to be put in place to prevent the return of the rampant property speculations, which we witnessed a couple of years ago, some feel placing a mortgage cap of this magnitude will affect the end users, not the speculators who mainly deal in cash.
Up till now, a buyer in the UAE could put down a 15 per cent deposit and with RERA, bank and agency fees this came out at about 21 per cent of the asking price.
With this new law, the equation will work out at around 56 per cent, which is going to make buying a home for the average expat a daunting proposition. Indeed, many who were getting ready to put down money for a property in the UAE will now find they are no longer eligible.
As much as anything, I think it is the suddenness of the move that has unsettled residents and industry professionals. A question I keep hearing is why are these new mandates being implemented so suddenly, without any real grace period? There has definitely been a small rise in prices recently and of course we want to avoid the speculators coming back to Dubai and causing mayhem, so it is clear something had to be done — but perhaps there are better options than this capping.
In Geneva, Switzerland for example, there is 50 per cent tax on added value in the first year and this has proved an effective way to put off speculators. There are other options too, such as limits on mortgage amounts that are tied to an individual’s salary, credit worthiness of the borrower and improved due diligence.
From the conversations I have had, most of the UAE’s real estate agents would welcome tougher general regulations to keep the property industry healthy, but think the current proposals will hurt the wrong people.
It seems that potentially the winners of the new rules will be landlords. The rental market is mainly expat-driven and the cap will have an inflationary impact on rents since most people will not be able to afford paying a 50 per cent down payment and will have to scrap any plans to buy.
The other negatively affected parties include construction companies, finance companies and investors who bought properties to resell.
Many still believe the new law could have a negative impact on the market as a whole in the short and medium terms.
We should applaud the authorities for taking measures to avoid problems in the real estate market, but I think that an active dialogue between everyone concerned — the Central Bank, property brokers, landlords and mortgage lenders — is needed at this point to see what is really the best solution. Indeed, I have read that this has now begun, which is heartening news.
So, we will have to wait and see what happens next, but there is no doubt that the outcome to this particular issue will shape the fortunes of the market this year and beyond.
