First with Financial Comment from Arabia

Can more housing finance really save Dubai real estate?

with 2 comments

feb06housedubai 007Dubai house prices have rebounded by seven per cent in the third quarter, according to Colliers International, with a 64 per cent rise in transactions to an unspecified volume. But this is widely expected to prove a dead-cat bounce as the market is flooded with new property in a likely double-dip global recession.

The emirate is the worst performer out of 46 global markets monitored by Knight Frank over the past year. Colliers said improving home finance conditions and expatriate job stability had helped in the third quarter.

Home loan offers

Standard Chartered Bank is offering mortgages from 6.5 per cent, down from nearer eight per cent earlier in the year. And the Minister of Economy Sultan Bin Saeed Al-Mansouri told reporters in Dubai that the government will implement a solution for the loan moratorium at Amlak Finance and Tamweel next January.

The Dubai International Financial Centre held an economics workshop on housing finance today. The audience heard that mortgages amount to around five per cent of GDP in the UAE compared with 80 per cent in the US and 96 per cent in Denmark.

DIFC chief economist Dr. Nasser Saidi presented an impressive case for the creation of an Emirates Mortgage Guarantee Corporation both to increase the availability of home loans and to standardize UAE mortgage agreements.

Danish home loans

There was also a presentation of the Danish mortgage system which has been successfully exported to Mexico in recent years, and might make a model solution for the UAE. Danish home loans are directly linked to mortgage backed securities and appear particularly fair to both parties.

Mortgage finance is by far the biggest business for the banks in many countries and it clearly has enormous room for development in the UAE. But banks are presently reluctant to lend for the same reason that people are reluctant to buy: they can see the upcoming massive oversupply and fear its impact on prices.

And while an Emirates Mortgage Guarantee Corporation is an excellent idea and ought to be taken up by the UAE Central Bank as a matter of priority, it will not be until the property market has reached some kind of equilibrium that fresh finance will really aid market recovery. Throwing good money after bad would not work.


Written by Peter Cooper

November 3, 2009 at 2:59 pm

2 Responses

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  1. Here in Taiwan we are still at just over 2% for mortgage loans. I stooped over in Bangkok last week and found that many expats were buying homes in Bangkok because they were cheap and nice. People usually want to retire some where they find affordable and not an arm and a leg every month just to cover basic bills.

    I stand on the basics of mortgage loans being reduced, residency visa fees being reduced and community fees being reduced for apartment and villa owners along with prices of basic utility fees being reduced which are currently under a monopoly. With the above done Dubai should start to see expats and investors returning to Dubai which will lead to growth in Dubai.

    Rents in the big malls also need to be reduced so that retail prices can drop or tourists won’t be coming to Dubai to shop.

    Ed Note: A mixture of market forces and government re-thinks ought to achieve this – but if Dubai achieves its status as a major financial centre then a high cost-of-living will follow – Dubai wants to be more like Hong Kong or Singapore than Bangkok. However, getting to that position is going to be tough and cheaper costs are happening now. Somewhere in the middle of this you have an excellent buying opportunity, and that keeps me in Dubai!


    November 3, 2009 at 10:25 pm

  2. Don’t forget the other major reason peter: Lack of info. Banks don’t know how many loans a customer has taken and what are the odds of being repaid back. Which leads to issue #2 high interest rates. You have to agree, compare to other countries, the rates in the U.A.E are awefully expensive, often times amounting to double the price of what was paid for the home

    Should a new credit system that is internationally accepted be started, I can see banks increasing their lending, and boosting the international recognition of Dubai as a safe, trustworthy financial and real estate hub of the middle east.


    November 3, 2009 at 5:07 pm

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