Expat Mortgage Limits May Slow Middle East Hires
In the aftermath of the financial crisis when money was too free, the UAE central bank is tightening up on loans by proposing new limits on mortgages for expats. That may crimp Dubai's ability to hire needed expatriates in the banking industry, experts say.
The UAE central bank told financial institutions on 31 December to limit their mortgage loans to expatriates to 50% of the property for the first unit and 40% for the second and other properties. For Emiratis, this cap is 70% for the property value. Despite calls from the banks for these limits to be increased, the move looks set to go ahead.
The logic is simple – it’s an attempt to stop the rapid escalation of residential property prices and the potential for another bubble. Jones Lang Lasalle (JLL) suggests it will also reduce demand for residential property and slow the recovery of prices this year.
Craig Plumb, head of research, MENA, at JLL says: “Traditionally, banks would lend 85-90% of the value of the property, so clearly it will affect demand." While real estate consultants CBRE estimate that between 20% and 30% of expats buy instead of rent, the move may also push up rental rates. JLL's research suggests asking rents went up 7% in the last quarter of 2012 from the previous year's quarter.
Dubai has become a more attractive destination for financial professionals looking to escape the carnage in Western locations in recent months.
“Most people come over on two or three year contracts, so the vast majority will just look to rent,” says Nigel Sillitoe, chief executive of Dubai-based financial research firm Insight Discovery who previously worked in fund management in the Middle East. “However, to some extent the cap closes of the option of buying to people who want to stay in Dubai longer term, and the prospect of rising rents could prompt some to leave the UAE.”
Back in 2004-07, when it was common practice to buy unfinished residential plots in Dubai with minimal deposits and then ‘flip’ them for a profit before the property was even built, post-bonus season was an active time for bankers to plough into the market, says Mark Swan, director, MENA at Principal Search and a former banker.
“Those days a long-gone and the mortgage cap will only reduce the number of speculators,” he says. “Bonuses are shrinking, and the cash component is getting smaller, while deferrals and the prospect of clawbacks is also prompting many to be more cautious with their money.”
Arabian Ranches, where prices shot up 24% in 2012, villas in the Springs, Palm Jumeirah, the Meadows, and Jumeirah Islands are the places to buy property in Dubai, according to a recent report from property management firm Asteco.
Dubai has become a less attractive destination for expat financial services professionals looking to invest, according to Simon Conn, an overseas property specialist based in the UK.
“In the boom years, I worked with a number of investment bankers looking to invest in properties in the South of France or other expensive destinations after bonus payments,” he says. “Now, popular locations include Thailand, Cape Verde or Italy. Dubai is not a big target.”
