UAE’s Mortgage Market Gradually Picks Up
News Article Date: Thursday 22nd of October 2009
DUBAI — The UAE’s mortgage market, stalled for months in the aftermath of the global financial slump, is gradually picking up. However, a complete recovery is unlikely before 2011, once real estate prices stabilise and economic conditions improve, mortgage experts said on Wednesday at the Cityscape property conference.
In spite of difficult conditions, activity is teeming again in the mortgage business as banks have partially resumed lending, though with more stringent criteria, said Chris Dommett, Chief Executive Officer of mortgage advisor John Charcoal Middle East. Dommett estimated that mortgage transactions tripled from Dh340 million in May to Dh940 million in July.
“We are coming from a low base here, as transactions almost stopped for a couple of months. But I expect the uptrend to continue for the remainder of the year, with partial recovery to start in the second quarter of 2010. The complete recovery, though, should happen in 2011,” he told an audience of about 40 people.
Prior to the crisis, the mortgage market in UAE was estimated to be worth Dh20 billion and had been forecast to grow to Dh64 billion over the following three years. But liquidity dried up starting in September 2008, jolting investor confidence. Banks found that their loan-to-deposit ratios were inadequate, causing them to hit the brakes on lending.
The UAE’s five-year property bonanza, fueled by rising oil prices and funded by loose credit, halted abruptly as thousands of expatriates — the main source of housing demand — returned to their home countries after losing their jobs.
Dommett said that people have started to believe began the situation has stabilised somewhat and that property prices are not going to go down much further. “People who have been sitting on the fence are buying. Those with cash feel it’s a good time to buy again. People are actually completing transactions, now that interest rates have come down, and some banks have re-entered the market,” he said.
Efforts by the Dubai government to strengthen its property laws are helping to improve sentiment, and the enforcement of safeguards for both developers and buyers should make banks feel more comfortable about extending credit to end-users, said Lynette Brown, a partner at UAE-based law firm Al Tamimi & Company. The enhanced laws “provide a level of certainty that wasn’t there two years back,” she said.
A key law is the Interim Registration Law for off-plan properties, which requires both buyers and developers to register their interests as mortgagee and mortgager. Enforcement of this and other improved laws by the newly-created Dubai Property Court will be tested once the court takes up real estate disputes in the next three months, Brown noted.
Dommett said that investors also are watching the outcome of the planned merger of Tamweel and Amlak Finance, two troubled mortgage players which together had a combined 70 per cent share of the local market. The government is still trying to determine the final structure of the merged entity.
“These two have to go back into the market in whatever form — whether as a merged company or individual entities — because none of the existing banks has the willingness or the ability to fill the entire vacuum,” he said.
Dommett sees more fundamental issues, aside from the stalled merger.
“I think the problem is simply not the merger, but more importantly, funding. What good is the merger if they cannot lend? Amlak and Tamweel need funds to meet existing commitments and to lend for new mortgages.”