Difficulty securing finance is the greatest deterrent to potential property buyers in Dubai, the survey found. Emaar Hospitality Group
Difficulty securing finance is the greatest deterrent to potential property buyers in Dubai, the survey found. Emaar Hospitality Group

Property

Dubai residents call for relaxation of mortgage rules

'There is a major segment of tenants who are being kept away from ownership by the current regulations,' Core Savills said.

Lucy Barnard
Michael Fahy
Sean Cronin

September 07, 2016

A sluggish Dubai property market is reviving calls to relax mortgage caps and kick-start a real estate recovery.

Big project launches at the annual Cityscape Global exhibition in Dubai this week were not enough to distract attention from a stubbornly subdued property market. The focus naturally turned to what could be done to lift sentiment, with more than seven in 10 people surveyed by broker Core Savills in Dubai saying mortgage caps should be relaxed.

Difficulty in securing finance is the greatest deterrent to potential property buyers in Dubai, the survey found – with one in four saying they are being hindered by the current rules.

“There is a major segment of tenants who are being kept away from ownership by the regulations,” said David Godchaux, Core Savills’ chief executive.

The Central Bank of the UAE introduced a mortgage cap in late 2013, which restricted the loan-to-value ratio for mortgages at 75 per cent for expatriates and 80 per cent for Emiratis for properties costing less than Dh5 million.

Half of the people interviewed in the survey, which covered 800 tenants, expect the Dubai residential property market to recover over the next year. But elsewhere the view is less positive.

The latest market data released to coincide with Cityscape suggests there could be further declines in the market into next year before a much-hoped-for boost in activity as the 2020 Expo draws nearer. Developers are seeking to entice buyers as weak oil price and strong dollar, to which the dirham is pegged, act as a drag on the property market.

“What is interesting to note in Dubai is the decision of families to downsize and even send spouses and children home in an effort to save money,” said John Stevens, Asteco’s managing director. “We are seeing signs of this in Abu Dhabi with a migration or downsizing mainly from high-end large units, to more affordable developments.”

Dubai property prices fell by 2.4 per cent in the second quarter, 5.2 per cent on an annualised basis, according to data from Cluttons, the property consultancy.

While mortgage caps have succeeded in curbing speculation in some parts of the market, big developers such as Emaar Properties and Damac Properties continue to announce new project launches – often at a steep discount to completed units in the secondary sales market. Damac this week announced the sale of four-bedroom houses on one of its golf-themed developments starting from Dh1.6 million as it prepares to deliver 1,350 homes next month.

Damac’s managing director drew attention to the challenge of accurately matching supply to perceived demand in an industry that is often under close scrutiny. “If the market is stable, and prices are stable, and supply and demand are close to each other you are not happy,” said Ziad El Chaar. “And if the market starts growing and you start having growth in prices of 20 to 25 per cent you start saying, ‘we have a bubble’.”

Among the vast models and sprawling stands at Cityscape this week, much of the discussion focused on where the next catalyst for a rebound may come from – with mortgage availability regarded as an important factor in the volatile fortunes of the industry.

“For end users a more relaxed mortgage cap could well be a good thing. Having people put down roots in their communities is something that should be encouraged,” said Alan Robertson, regional chief executive for JLL, the global property consultancy.

A senior banker at an Abu Dhabi lender said banks would welcome a relaxation of the mortgage caps because most sales are still made to cash buyers and because mortgages are backed by an asset and so sometimes are seen as a safer risk.

Still, not all brokers believe the loosening of lending restrictions would represent a boost for the market. Some point to the speculative excesses of 2008 that began again to emerge four years later and which presaged the introduction of the mortgage cap by the government in 2013.

“Mortgage caps were introduced to limit speculator activity in the market,” said Faisal Durrani, Cluttons’ head of research. “So far they have proved quite effective … especially a couple of years ago in the wake of the Expo announcement. The government did people a favour and prevented them getting into too much debt. It is too soon to start tinkering with a measure which was only introduced recently. It is nice to have some stability in an emerging market.”

He says a relaxation of the rules could send the wrong message to the market. “Instead what Dubai really needs is more housing which is truly affordable and there should be guidance at a federal level to produce a definition of affordable housing.”

mfahy@thenational.ae

scronin@thenational.ae

lbarnard@thenational.ae

* with reporting by Mahmoud Kassem

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”