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First with Financial Comment from Arabia

Watch for a resumption in lending by Tamweel and Amlak

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UAE home loan finance house Tamweel has got it half right in cutting the cost of its mortgage base rate by 50 basis points to 7.9 per cent, still a bit high by global standards. But Tamweel does actually also have to start lending again.

Since their stock was suspended in November 2008 the UAE’s two former Islamic home loan companies Amlak Finance and Tamweel have been closed for new mortgage business, and have not made a single new loan.

Small mortgage market

This has not helped to support the local housing market where prices in Dubai have plummeted by up to 50 per cent since then. But with a total of 27,000 mortgages in a potential market more than ten times that in size, the UAE home loan market had barely got going before it stopped.

If prices decline any further it is not likely to be due to foreclosures. Tamweel says non-performing mortgages stand only at above three per cent of its portfolio.

The big issue for UAE property, more so in Dubai than Abu Dhabi, is the upcoming oversupply from developers building out property sold off plan. Yet even here the use of finance may not be anything like as prevalent among unit buyers as it is in more developed housing markets. The biggest bank loan problems are with the developers themselves, not the customers.

Cash market

Indeed, in the longer-term Tamweel and Amlak – still the subject of an unconsummated merger process – would appear to have a bright future lending into an under-capitalized local housing market, that is to say one based largely on cash and not credit.

UAE mortgage rates at 7.9 per cent still look on the high side. In fact, even if US base rates rose back to more normal long-term rates there is room for UAE home loan costs to come down. And as mortgage costs fall then house prices generally rise.

Could the UAE housing market therefore bottom out when Tamlak – or whatever it is called – actually starts lending again? Usually such real estate recoveries take some time to build up steam but this is probably an important market indicator.

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Written by Peter Cooper

February 3, 2010 at 11:04 am

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