Mortgages to Foreigners Maybe Capped at 50% of Home Value, Sources

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A large number of international media sources report that UAE’s Central Bank have issued guidelines restricting mortgages for expatriates to 50 percent of the property value. Such move may threaten the recovery in property prices in the second-largest economy in the Gulf.

Bankers reportedly saw a circular issued yesterday and spilled the news to media outlets. They said the limit is at that level, declining to be identified because the information isn’t public yet. There is no official announcement yet.

Home loans to U.A.E. citizens can be as much 70 percent of the value of the property for the first residential property and 60 percent for a second home.

Such a new law may have a negative effect on the country’s real estate industry, because it will constrain the increase in real estate prices that started in 2012. Most of the real estate buyers nowadays are end-users who obtain mortgages. Half of the price of a residential property could be really a large sum for the majority and scare them away. Therefore, residential prices may decline in the short term. Not everyone can afford to put in a 50 percent down payment.

According to the reports, foreigner would be able to obtain mortgages of as much as 40 percent of the value of a second property.

Dubai’s real estate market is showing some signs of recovery after prices plunged between 60% and 80% percent over the past four years due to the global credit crisis.

According to the reports, no date for implementation of the new policy was specified in the yesterday-released circular. There were no loan-to- value limits under the earlier policy and some banks provided loans of as much as 90 percent of the value of the property.

However, banks on Monday started informing customers that the old mortgage pre-approval letters would be cancelled and new loan-to-value (LTV) ratio would be implemented. Some banks in the UAE charged as much as Dh5000 to process and issue mortgage pre-approved letters.

Property prices in Dubai were helped to stabilize this year by the country’s safe-haven status amid the pro-democracy protests sweeping much of the Arab world. Now, mortgage consultants and property agents comment that the new cap on home loans will drive end-users away.

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