The real estate market in Dubai has seen a continuous slump for three years. However, in recent few months, housing and luxury home sales have shown indications of recovery. Dubai is also ranked among the top markets for housing sector in 2013 by a recent Knight Frank report.
However, the government of U.A.E has decided to cap the mortgage loan to 50 percent of the value of the property for foreigners. The measure could pose a huge threat to the real estate industry of the country, reports The Washington Post.
News about the alleged limit has not been confirmed by government officials, but a notice has been sent to all the commercial banks of the country notifying them about the cap. Bankers are reportedly astounded by the circular and have reflected on the issue saying that the step could hurt foreign investors interests and could hinder the planned foreign investment plans from materializing, reports Property wire.
The circular had urged all the lenders to apply the mortgage borrowing cap with immediate effect. The earlier rate of mortgage loan was 70 to 80 percent of the property's value, reports FinancialUAE.
"They are trying to regulate banks, but are controlling consumers by giving them limited choices. It will lead to less investment by end users" a Local Bank's senior executive told Reuters.
While for the foreigners, the borrowing rate is fixed at 50 percent, it remains higher for U.A.E nationals at 70 percent. The rate is fixed at 40 percent for borrowing expats, reports FinancialUAE.
"In the short term, it's a negative because it will stop the hike in real estate prices that we've seen so far. Since most buyers these days are end-users, you might see prices decline because not everyone can afford to put in a 50 percent down payment," Tariq Qaqish, deputy head of asset management firm, Al Mal Capital PSC told The Washington Post.
The Central Bank levied the limit in order to control the aggressive lending practices that had earlier led to bad debts for the banking industry, reports FinancialUAE.
