UAE central bank not to impose mortgage caps

January 23, 2013 - 7:18:52 am

DUBAI: The United Arab Emirates central bank has confirmed that it will not impose limits on mortgage loans without consulting commercial banks, after an attempt to introduce such rules triggered fierce protests from the banks.

It is the third time in the past year that the central bank has introduced regulations designed to reduce risk in the banking sector, only to back off from enforcing them after meeting opposition in the business community.

The incident raises questions over authorities’ regulation of banks as the UAE recovers from Dubai’s corporate debt crisis of 2008-2010 and seeks to avoid the boom-and-bust cycle that plagued its real estate market in the past decade.

A circular sent to commercial banks by the central bank late last month , said mortgage loans for foreign individuals should not exceed 50 percent of property value for a first purchase of a home, and 40 percent for subsequent homes. Caps for UAE citizens were set at 70 percent and 60 percent.

But UAE state news agency WAM yesterday quoted central bank governor Sultan Nasser Al Suweidi as saying the circular would not be enforced and was merely intended to help banks prepare for eventual rule changes which would reflect their feedback.

“There is no such system regulating real estate financing for individuals. This is now a proposed system to be issued after consultation with the banks,” WAM quoted Suweidi as telling Abu Dhabi television.

The central bank intends to introduce regulations covering the mortgage market but only after six to nine months, and there are no current discussions on possible percentages for mortgage caps, he added.