UAE central bank limits home loans to foreigners -sources

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.

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