UAE caps mortgage loans to avoid property bubble
* Mortgages for first-time buyers capped at 80 pct of home value
* New rules less strict than originally planned
* Dubai house prices surge 20 pct in past 12 months
By Stanley Carvalho
DUBAI, Oct 29 (Reuters) - The United Arab Emirates has imposed limits on mortgage loans to prevent another boom-and-bust cycle in the property market, but the restrictions are not as stringent as first planned after lobbying by the banking industry.
UAE property prices plunged more than 50 percent between 2008 and 2010 after a speculative bubble burst, pushing Dubai close to default.
Dubai's housing market is now rebounding, with prices up over 20 percent in the last 12 months, prompting the International Monetary Fund to warn in July of the risk of another bubble forming.
Under rules issued by the central bank this week, mortgages for first-time buyers of a home worth up to 5 million dirhams ($1.4 million) will be capped at 80 percent of the property value for UAE citizens and 75 percent for foreigners, government and banking sources said.
For purchases of second-time and subsequent homes, mortgages will be capped at 65 percent for locals and 60 percent for foreigners, the sources said. Among other restrictions, loans should not exceed 25 years and should be cleared by locals by the age of 70 and foreigners by the age of 65.
The rules will take effect one month after being published in the UAE's official gazette, bankers said; it was not clear when that would happen.
Senior central bank officials could not be reached to comment. The UAE central bank often does not announce policies publicly, preferring to circulate them privately among banks.
The central bank had originally announced curbs on home loans last December, limiting mortgages for foreigners to 50 percent of a property's value for a first purchase and 40 percent for subsequent house purchases. Caps for UAE citizens were set at 70 percent and 60 percent.
But those rules were suspended after just a month due to strong protests from commercial banks, which complained that their business would be hurt. The revised rules have been issued after consultations with the banks.
Authorities have taken some other steps to prevent the property market from overheating; earlier this month, Dubai doubled to 4 percent the fee charged for registering real estate transactions.
But it is not clear how much impact the mortgage caps will have on a market where many purchases, especially speculative ones arranged for quick profit, are conducted with cash.
"The (new mortgage) rules are a good thing for the industry and I don't think they will have a negative effect on prices," the head of retail banking at one bank in the UAE told Reuters. "It's a good, balanced document which takes everyone's needs into consideration."
In a commentary, investment bank EFG-Hermes said the new limits were roughly in line with the size of mortgages that banks were already providing, so it did not expect any immediate impact but "a formalising of the regulatory landscape". (Additional reporting by David French; Writing by Andrew Torchia; Editing by Susan Fenton)
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