UAE bank body hopes mortgage caps will curb speculation

e Emirates Banks Association is discussing proposed caps on mortgages with the United Arab Emirates’ central bank, hoping to raise the limits while curbing speculation in the real estate market, the industry body's chairman said on Sunday.

The EBA is awaiting a response from authorities to its proposals to cap mortgage lending on a first property to 75 percent of value for expatriates and 80 percent for UAE nationals, Chairman Abdulaziz Al Ghurair told reporters.

The industry body is also proposing that mortgages for second and subsequent home purchases be capped at 60 percent for expatriates and 65 percent for local citizens.

Al Ghurair said the proposals, which also include limiting total lending on a single mortgage to 25 million dirhams ($6.8 million), were part of an overall discussion with the central bank on real estate lending and that final rules should be in place in the second half of 2013.

“It’s the intention of the central bank to ensure the health of the economy, the health of real estate developers and the banking system and from this, the idea came to put some guidelines down for mortgage lending,” said Al Ghurair, who is also chief executive officer of Mashreq.

A central bank circular sent to banks at the end of December said mortgage loans for foreign individuals should not exceed 50 percent of the property value for a first purchase of a home, and 40 percent for second and subsequent homes. The caps for UAE citizens were set at 70 percent and 60 percent.

The EBA has also told the central bank it proposes to limit mortgages extended to property speculators to 50 percent, though the details of this are still being considered.

The health of the mortgage sector will benefit from the introduction of a long-awaited federal credit bureau, and the EBA has asked the Ministry of Finance to expedite approval of this reform, Al Ghurair added.

Real estate prices in the UAE, particularly in Dubai and Abu Dhabi, collapsed after the bursting of a bubble in 2008, with prices falling more than 50 percent from their peaks. SHOW MORE