Friday, Oct 07, 2011

Gulf News

Dubai Interested in buying a home here? Then no longer do you need to place everything on the line… including the home.

As more mortgage providers get into the market with ever more competitive — and at times compelling — offers, prospective home buyers finally have the option to shop around. While no one’s saying the owners are spoilt for choice, there’s no denying the choices before them add up to more than a handful.

United Arab Bank is one of those choices. The Sharjah headquartered institution is working on an infrastructure that would allow it to pull its weight as one of the mortgage providers of choice.

Tom Smith, the bank’s executive vice-president for retail, sums up the game-plan.

Gulf News: All of a sudden the marketplace is seeing a raft of new mortgage offerings from banks who were never there earlier (and if they were, never this prominently). Is it because banks are now starting to see stability at the current property values?

Tom Smith: The current property prices have stirred up significant interest in the market. Customers can now afford a home which was out of their reach earlier.

In addition, the last few years have seen the market change from being investor-driven to an end-user where customers have a long-term commitment to the region and the UAE.

This has meant customers are looking for affordable mortgage solutions, while in the past price sensitivity was much lower and customers did not mind paying a higher rate for a mortgage as they intended to sell the property in the short-term at a premium.

This is the reason mortgages in the past were sold at very high rates.

But what made the banks to go for a rate revision?

The current interest rate environment has meant banks can offer more attractive rates which has increased affordability for the customer.

At the same time it reduces the risk for the banks as the current market value on select developments is realistic and has shown signs of stability.

This has given existing mortgage customers a huge opportunity to reduce their interest burden by switching over to current rates which were not available from the original lenders.

Are banks being extremely selective about the property and property clusters they deal in? That is, not look beyond the established freehold zones?

Most banks are focused on extending mortgage facilities on properties which are completed and occupied or ready for occupation.

While they are more comfortable lending on established developments, they also acknowledge that once the property is completed and mortgage can be registered in the Lands Department, there is minimal risk.

For the mid-tier banks, how much of a business case is it to tap opportunities in mortgage offerings? As a rule, given their longer tenors, does it mean a hugely profitable line for the banks?

Most mid-tier banks did not have a large exposure to the real estate market at its peak and did not have to contend with asset valuation issues that the larger banks are still coming to terms with.

Existing mortgage customers are still paying a high rate on their mortgages and looking for sensible alternatives.

This is where the mid-tier banks have come to the party and extended the benefits of lower funding costs to the customer.

This has given these banks access to a huge base of existing mortgage customers to focus on. The real attraction is the long-term nature of the relationship which mortgages afford.

Has clarity finally come about on using property as collateral?

One of the biggest issues in the past has been foreclosure. The laws have undergone significant changes and we have witnessed a few successful cases where banks have repossessed the property.

This gives lenders the confidence and the clarity required to use property as a collateral in the real sense.

Even with the new entrants, there are not that many banks offering refinancing options. Why is that? Could it change?

Recent trends indicate most banks today are extending refinance options as part of their overall proposition.

Considering the fact all banks insist on a property valuation and refinance based on current market value, we will see more and more banks offering this option.

Recently, advertised mortgage rates have dropped below the five per cent mark. Do you feel in the current environment — both local and global — such rates can be sustained?

While the prevailing interest rate scenario in the market has enabled banks to offer the competitive rates we have today, interest rates are bound to change during the lifetime of a mortgage. Almost all banks follow a variable rate pricing model which gives them the flexibility to amend their rates to reflect market changes as and when necessary.

For your own mortgage exposure, is the remit confined to select properties in Dubai’s freehold clusters or is it more widespread? How about lending on property sales in Sharjah or Abu Dhabi?

United Arab Bank extends mortgage facilities on completed properties across the emirates.

Being a 36-year-old local bank, we understand the UAE market better and see potential mortgage opportunities across the emirates other than Dubai and Abu Dhabi.

In addition, there are few banks catering to this segment. This ties in well with the bank’s overall strategy to partner with UAE nationals and committed expatriates and offer them an attractive proposition.

By Manoj Nair?Associate Editor

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