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UAE Central Bank announces mortgage cap


Regulation to curb speculation and cool property market.

October 30, 2013 12:06 by

The Central Bank of the UAE has confirmed that it will be restricting the amount of cash that homebuyers can borrow in an effort to cool down property prices and curb speculation in the sector.

The previously planned mortgage caps will restrict home loans to expats and Emiratis at 75 per cent and 80 per cent of a property’s value respectively – if it is worth less than AED5 million. For a property that is worth more than AED5 million, the limit will be set at 65 per cent and 70 per cent respectively.

According to a statement released by the central bank, the period of the mortgage will be limited to a maximum of 25 years, while the maximum age at the time of the last repayment is 65 years for expats and 70 years for UAE nationals.

The regulatory bank has set the upper limit on mortgages for second purchases at 60 per cent of a property’s value. All mortgages will be restricted to 50 per cent for off-plan properties, regardless of purpose, value or nationality.

The rules will come into force one month after they are published in The Official Gazette this week, the statement reveals, stressing that the 51 banks operating in the UAE must take the borrower’s financial resources and eligibility into consideration.

Last December, the central bank tried to introduce the caps on home mortgage lending, but suspended them after lobbying by commercial banks, due to fears that their businesses would suffer.

According to a recent report by Goldman Sachs Group Inc, concerns that Dubai’s property market is a bubble or heading towards another crash have been exaggerated. It argues that property prices are still 36 per cent below their 2008 peak and the new regulation (hike in registration fee) focused on curbing speculation, along with an increasing supply to help keep values down.

Commenting on the announcement by the central bank, Ziad El Chaar, managing director of Damac Properties, says that the new system does not include any guidelines for banks to provide a pragmatic and practical non-resident mortgage.

“While we welcome all efforts by the central bank to increase regulation and offer further security in the Dubai property market, we believe that there is also a requirement to provide overseas clients with the opportunity to purchase a home in the UAE and we call on all banks to implement such a facility with easy and straightforward application requirements,” he says.

Last week, El Chaar requested all banks in the UAE to “step up and support the market” by providing a non-resident mortgage to attract international investors, adding that banks are still “too timid”. “Not everybody can come straight into the market with $1 million and buy a property with cash, in full,” he adds.

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