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ABU DHABI: Commercial banks in the UAE plan to ask the central bank to delay and soften new rules placing caps on mortgage loans for residential housing, banking industry sources said yesterday.
A central bank circular last week said mortgage loans for foreign individuals should not exceed 50 percent of the property value for a first purchase of a home, and 40 percent for second and subsequent homes. The caps for UAE citizens were set at 70 percent and 60 percent.
The rules, on which the central bank has not commented publicly, appear to be designed to prevent any repeat of a property market bubble which developed in the mid-2000s, and then burst with disastrous effects on the economy.
But commercial bankers said a fledgling recovery of the property market, which began in Dubai last year, could be slowed by the rules, about which they were not consulted. The Emirates Banks Association, an industry body, met yesterday to discuss its response to the circular, industry sources said. “It was agreed that the EBA will write to the central bank requesting a 30-day delay for implementation of the circular,” said one source.
In addition, the EBA will by next Sunday prepare a proposal that is likely to ask the central bank to raise the mortgage caps for first-time buyers to 60 percent for foreigners and 80 percent for local citizens, the sources said.
Bankers are generally comfortable with the central bank’s caps on mortgages for second and subsequent homes, a second source said. Foreigners account for about 80 percent of the UAE’s population of 8 million and are major buyers of real estate in designated areas where they are permitted to own property. Reuters