Wednesday, Jan 02, 2013

By Asa Fitch

Of ZAWYA DOW JONES

DUBAI (Zawya Dow Jones)--New mortgage rules in the United Arab Emirates that prevent expatriates from borrowing more than 50% of the value of properties could endanger the country's real estate market recovery, analysts say.

The U.A.E. central bank issued a circular on December 30 that set maximum loan-to-value ratios for non-nationals at 50% for their first homes, according to a copy of the document seen by Zawya Dow Jones. U.A.E. nationals can borrow up to 70% of the value of their first homes, the circular says.

If banks are required to adhere to them, analysts say the limits could put a major damper on the U.A.E.'s real estate market, and especially Dubai's.

Property prices in Dubai staged a recovery last year as confidence returned and the country benefited from its status as a safe haven amid social unrest elsewhere in the Middle East.

Dubai's real estate market had been one of the hardest-hit in the aftermath of the global financial crisis in 2008, when prices fell by more than 60% in some areas.

"You will see less property transactions because all of a sudden you have significant section of the market taken away," said John Davis, the chief executive of Colliers Middle East, the property brokers. "If you were looking at buying a home on Wednesday last week, and you now need 50% deposit, then you will question the decision on Wednesday of this week."

No loan-to-value cap had previously existed, and mortgage loans amounting to 75% to 90% of a property's value are common, analysts say. The central bank circular did not specify a date on which the new caps would go into effect, but said banks and finance companies "are required to comply with this notice."

The limits also include a 40% loan-to-value cap on expatriates' second homes and a 60% cap for nationals on second homes.

Digvijay Singh, an analyst at VTB Capital in Dubai, said the restrictions could reduce deal activity in Dubai by 60% as sellers refuse to transact and buyers scout for distressed sales. He said, however, that the impact on banks would likely be limited and that it may be revised to be less stringent.

"Precisely because it's so damaging and banks are shocked themselves by the measure I think central bank would offer some reprieve," he said. "[The] 50% LTV is not the problem per se. It's the system wide shock of going from 75% to 80% LTV on new loans to 50% and the dislocation of buyer affordability distribution which will unnerve the market completely."

Write to Asa Fitch at asa.fitch@dowjones.com

(Rory Jones in Dubai contributed to this story.)

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(END) Dow Jones Newswires

02-01-13 0820GMT