UAE Central Bank announced mortgage-loans limits

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The Central Bank of the United Arab Emirates last week approved the decision to increase the recently proposed mortgage-loans limits. Initially, the proposed mortgage cap for expatriates was 50%, which many viewed as unjust.

The country’s Central Bank preliminary approved UAE’s Bank Federation’s proposal. That is said to have happened at a meeting between the both entities. Back in January, the UAE Bank Federation made a suggestion that the country’s expatriates should have the chance to borrow 75% of their home’s value. Also, the federation offered this percentage to be 60% for second homes and 50% for those which are under construction.

Back in December 2012, UAE’s Central Bank said that the loan-to-value cap for expatriates needs to be limited to 50% for first homes and for second home to 40%. Previously, mortgages had not limits and most banks approved 90% or 85% of the home value home loans.

According to the government, over 80% of the United Arab Emirates’ population comes from foreign countries. Similar is the situation in the two biggest cities in the UAE – Abu Dhabi and Dubai. About 11 years ago, Dubai allowed expatriates to become owners of real estate. That lured many investors from Russia, India, Pakistan and Iran to the city. Despite that, during the period of financial crisis, a large number of expats become unemployed and many lost their businesses. As a result, they failed to make their payments on time and credit issues floaded regional banks.

In addition, UAE Bank Federation suggested that an 80% limit should be imposed on UAE resident who were born in the country for their first mortgage and 65% for their second. In comparison, the Central Bank offered caps of 70% and 60%, respectively.

After the global credit crisis five years ago, Dubai saw some of the most dramatic real estate collapses. Nevertheless, the economy is on a healthy recovery path. Rents for villas and apartments in Dubai increased with 17% on the average in 2012. That was due to the fact that investors from the Arab region flocked to Dubai to escape the Arab Spring political turmoil elsewhere, as well as the Eurozone financial crisis. Prices of villas that were for sale increased by 23% year-on-year on the average. Apartments, on the other hand, were found to have jumped with 14% in some area of the city.

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