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Larger deposits needed but mortgages available and rates likely to drop
Abu Dhabi’s home finance industry, unlike some others around the world and indeed elsewhere in the Gulf—is still alive and kicking. Banks and financial institutions here have available funds and are willing to lend to suitably qualified home buyers and investors.
Mortgages are definitely harder to get than during the go-go years, however. According to a range of financial analysts and real estate agents the size of the hurdles that borrowers have to jump has been raised significantly.
Lenders now typically require customers to place deposits of between 15 to 30 percent – much higher than the previous norm. Deposits as low as 10 percent were once common but are now no longer acceptable
. Emiratis and contracted salaried expatriates buying upscale housing in prestige developments are the preferred customers, of course. Developments such as Al Raha Beach and Al Reem Island are viewed particularly favourably as they are seen as prime, long-term investments.
And those who buy from top-tier developers such as Aldar, Sorouh and TDIC typically have few difficulties – provided they can put down the deposit.
Putting down a large deposit today is not quite as daunting as it may first appear. Property prices in the Emirate have fallen in the last three to six months; and slowing sales mean that developers and agents are far more willing to enter into negotiations over prices and terms.
Most developers also have tie-ins with finance houses and can help customers arrange mortgages.
Those who can put down a large deposit are doubly rewarded. Lenders charge significantly lower rates to those who have lower loan-to-value (LTV) ratios.
There are also solid indications that mortgage interest rates, currently in the region of eight to ten percent, will drop in the medium to long term.
There is continued uncertainty in global financial markets, however. Observers and the lenders themselves all agree that a fall in rates would stimulate the market but financial institutions are now extra cautious and there is little unanimity about when exactly lower rates will be offered. Abu Dhabi Finance thinks they may appear within a few months; ADCB believes it may take longer.
Leading lenders, including the Abu Dhabi Commercial Bank and Abu Dhabi Finance, have publicly indicated that they would like to lower their mortgage rates in order to generate more business. The borrowing costs of the financial institutions are falling as the EIBOR (Emirates Inter-Bank Offered Rate) decreases. It now stands at 2.6 percent, down from four percent just two months ago.
“There is enormous demand for real estate in Abu Dhabi,” said Philip Ward, CEO of Abu Dhabi Finance. “If the EIBOR rate remains at its current level or declines further we will look at potentially reducing our interest rates, which could stimulate even more demand.”
More cautious institutions, such as Finance House, charge higher rates and says it sees no reason to change its approach significantly.
As in other markets, the global financial crisis has restricted the availability of funds in the UAE and, particularly in the first quarter of this year, led to higher borrowing costs for financial institutions.
In some other markets this caused lending to dry up completely, the markets effectively ceased to exist. In Abu Dhabi, with liquidity ensured by large and continuing inflows of oil earnings, the market has remained relatively liquid and continues to function, albeit at a slower pace.
Government action, including stimulus measures and active ‘jawboning’ by leading political figures – talking the market up – has helped to keep loans flowing. In the last two months the UAE Central Bank, the Ministry of Finance and the Abu Dhabi Department of Finance have worked together on a coordinated series of stimulus measures to ensure that money continues to flow into the market.
Other positive signs include the return of Islamic home finance institutions. Islamic home finance firms Amlak and Tamweel, whose commercial lending activities had ground to a halt, are now being merged and are expected to re enter the market within weeks.
The housing finance industry in Abu Dhabi is set to grow strongly as large numbers of properties come on to the market. Abu Dhabi Finance, which only entered the retail mortgage market last November, says it expects massive expansion in the industry over coming years.
Mortgage Lenders
It makes sense to start mortgage-hunting with a specialist broker and/or your own bank, and be aware that there are other finance sources outside the Emirate which are prepared to lend in Abu Dhabi. These are the principal local lenders active in Abu Dhabi:
? Abu Dhabi Commercial Bank
02 696 2222
www.adcb.com
? Abu Dhabi Finance
02 678 5510
www.adf.ae
? Amlak Finance
02 446 3770
www.amlakfinance.com
? HSBC
800 4722
www.hsbc.ae
? Lloyds TSB
02 627 2942
www.lloydstsb.ae
? Mashreqbank
02 627 4737
www.mashreqbank.com
? National Bank of Abu Dhabi
02 611 1111
www.nbad.ae
? RAKbank
02 666 6658
www.rakbank.ae
? Tamweel
02 681 8252
www.tamweel.ae
? Union National Bank
02 674 1600
www.unb.co.ae
[Originally published in Abu Dhabi Week vol 2 issue 17]
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