Reforms in mortgage rules can lift property demand and prices
For the UAE’s real estate sector, any change to the current status quo on mortgages will be welcome … more so if the proposed law makes it easier for potential end users to come in. In particular, they are hopeful that new rules will raise the mortgage limit available on off-plan and ready properties. Currently, they are capped at 50- and 70 per cent respectively.
As per the directive, the Dubai Land Department has been tasked with framing the new law on home financing.
A full-fledged law will also come in handy at a time when mortgage rates are rising and turn burdensome on potential homeowners who want to tap banks for financing support. According to market sources, such a law will also exempt developers from needing to create artificial demand, through extended payment plans that stretch from two to five years post-handover.
Many in the industry had repeatedly been warning that an excess of such incentives could hurt developer margins and even cash flows if the mortgage deals turn sour. “With regard to the real estate sector, it will be interesting to see if an opportunity is taken by the government or UAE Central Bank to relax the loan-to-value (LTV) lending ratios, reduce acquisition and holding costs or somehow improve incentives for property investors in the city,” said Declan King, Managing Director and Group Head — Real Estate at ValuStrat. “With the Dubai real estate market displaying some signs of pressure, any such moves would likely be hoped to act as a stimulus. Although details about any new mortgage law or other changes are yet to be disclosed, we are keen to see full information on what is planned.”
Incidentally, the Land Department is also taking the lead in framing a new Retail Law, which could include a comprehensive mechanism to reduce rent related disputes in the retail sector. Top officials have had a series of interactions with leading retailers and solicited feedback on what the law should feature. Across the board, there is a realisation that the old ways of doing business need to change. The Dubai Government and its various agencies are taking the lead in making this happen.
Recently, the Dubai Chamber set up an industry grouping representing the brick-and-mortar retail entities.
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