DUBAI, Dec 30 (Reuters) - The United Arab Emirates central
bank has decided to limit mortgage loans for foreigners buying
residential real estate in the country to 50 percent of the
property's value, banking and real estate industry sources said
on Sunday.
The restriction is contained in a circular issued to
commercial banks, the sources said, speaking on condition of
anonymity because of the sensitivity of the issue.
Central bank officials could not be contacted for comment.
The central bank's instructions to commercial banks are
often issued through circulars that are not provided to the
public.
The central bank's move appears to be an effort to ensure
that another bubble in UAE real estate does not develop.
Property prices plunged by more than 50 percent between 2008 and
2011, triggering a corporate debt crisis in Dubai that forced
the restructuring of billions of dollars of debt.
This year, residential prices in parts of Dubai began to
recover and property developers laid plans for new high-end
projects; the central bank may want to head off the wild
speculation that characterised the last property boom.
However, bankers said they were shocked by the circular,
which could hurt confidence in the real estate market's recovery
and hurt the share prices of property developers and banks.
"They are trying to regulate banks, but are controlling
consumers by giving them limited choices," a senior executive at
a local bank told Reuters. "It will lead to less investment by
end-users."
An Abu Dhabi-based analyst said, "If implemented, this will
impact on the real estate sector. After the property market
improved, some banks had started lending up to 85 percent on
some projects."
The analyst added, "It's positive when we look at the
financial and lending perspective, but the question is whether
this lending cap is practical."
A real estate industry source said that in addition to the
50 percent cap for foreigners, a 70 percent limit had been
introduced on mortgages for UAE citizens. But it is not clear
whether the caps are recommendations or absolutely mandatory,
the source said.
Expatriates make up the vast majority of the UAE's
population of roughly 8 million. Foreigners are allowed to buy
property in designated areas; many from countries such as Iran
and India have done so because they see the UAE as a haven from
political and economic instability in the region.
It is not clear if the 50 percent mortgage cap for
foreigners applies to citizens of other Gulf Arab states, who
have been keen buyers of Dubai property.
The UAE central bank has previously sought to regulate the
lending of commercial banks to reduce risk, only to back off
after the banks protested.
The central bank announced in April this year that from
Sept. 30, banks would have to obey caps on their exposure to
state-linked entities. Some major banks remained above the
limits when the deadline passed, and earlier this month, the
central bank announced it was suspending the rules while it
consulted further with banks.