UAE cuts expat mortgages in response to default fears

Published:  8 Jan at 6 PM
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In a recent surprise move, the United Arab Emirates central bank has announced a restriction on expat mortgages capped at 50 per cent of the value of the property.

At the present time, no restrictions are applied to mortgages granted to UAE nationals, with 100 per cent loans the norm. However, as expat workers comprise the majority of the emirates’ populations, local banks fear a high level of risk exposure from expats defaulting on their mortgages.

The UAE’s banks are also looking to slow rising demand in the property sector by expats due to the perceived risk of an asset bubble being created. Banks normally subject Emiratis to a 70 per cent ratio of loan to value, and are calling for foreign staff to be subject to similar restrictions.

Many of Dubai’s ambitious construction projects, on hold since the financial crisis broke, are now being reinstated, including the world’s largest shopping mall. According to financial gurus familiar with the region, it's possible the expected property boom could lead to another downturn.

Others are questioning the relevance of the new restrictions, saying that many expats setting up home in the UAE are paying cash, resulting in rising property prices without the involvement of bank financing. Expats needing bank loans to purchase an apartment will lose out, especially as a sharp rise in rents is now making purchasing the sensible option.

UAE property agents are welcoming the news, stating that the overseas market is small and growth is unlikely to slow, thus attracting more overseas investors interested in buy-to-let purchases due to returns of up to 10 per cent. Real estate professionals in the region are hoping fewer expats will be able to buy and be forced into the rental market as a result.
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