The UAE Central Bank is limiting mortgage lending to prevent a repeat of the 2008 property market collapse.
The rules impose new mortgage restrictions on the 23 national banks and 28 foreign banking units in the country:
- For homes worth more than Dh5 million (US$1.36 million), loans for first-time buyer expatriates should not exceed 65% of the property’s value, while loans for Emiratis will be capped at 70%.
- For second and subsequent property purchases, loans for expatriates should not exceed 60% of a property’s value regardless of cost, while loans for Emiratis will be limited to 65%.
- For off-plan property, the maximum loanable amount is 50% of the property’s value regardless of purpose, value or nationality.
- The maximum mortgage period shall be 25 years and the maximum age at the time of the last repayment is 65 for expatriates and 70 for Emiratis.
- The total monthly repayments should not exceed 50% of a customer’s monthly income regardless of nationality.
- The total loanable amount should not exceed seven years’ annual income in the case of an expatriate and eight years’ annual income for an Emirati.
The imposition of mortgage lending caps has been precipitated by the continued rise in home prices notwithstanding the doubling of the transaction tax from 2% to 4% by the Dubai Land Department recently.
Industry observers however note that the new mortgage restrictions may slow entry to the housing market by end-users but not investors or speculators, who mostly buy with cash. A study by consultancy firm Jones Lang LaSalle (JLLS) found that about 80% of Dubai home buyers now pay in cash.
Dubai’s safe haven status along with its world-class facilities and its strategic location make it a destination of choice for large-scale overseas real estate buyers.
According to Dubai Land Department, this year Indians have already bought properties worth over Dh8 billion (US$2.18 billion), British nationals bought Dh4 billion (US$1.09 billion) while Pakistanis have invested more than Dh3 billion (US$0.82 billion). Funds are also flowing in from Central Asia, Russia and China.