DUBAI // Home financing could slow significantly as the global credit crunch constrains lenders and forces speculative buyers out, which could in turn restrain the country's property sector, say industry experts. Even though the Government is guaranteeing all bank deposits and loans between banks, as well as providing banks with an additional Dh70 billion (US$19.05bn), potential home buyers are still expected to find it difficult to secure financing.
Many home finance firms have reduced to 75 per cent the amount they are prepared to lend on a property, down from 90 per cent. Simultaneously, most are seeking to lend to buyers who want to live in properties, rather than those looking to make money just buying and selling them. "The mortgage landscape has changed drastically from last year," said Ali Khan, the executive director at Arqaam Capital.
"The borrowers' ability to enter the real estate market is significantly reduced." The merger between Tamweel and Amlak, the country's two biggest home-loan providers, scheduled for completion at the beginning of next year, could also create the region's newest Islamic bank. Both companies have banking licences pending from the Central Bank and sources say these applications could now be rolled into one. The companies need to be able to take deposits to provide themselves with a reliable source of financing, now that international credit has more or less dried up.
"If they jointly apply for a banking licence, it could strengthen their companies and encourage them to lend more," said the head of an Abu Dhabi-based asset management company. "There is no going back from the flaw in their wholesale funding design. The credit markets may be fine in a year, but if you have gone through what they have, would you want to take the risk?" Amlak, Tamweel and the Central Bank declined to comment.
A banking analyst said the companies would be much more likely to be granted a licence now, given the uncertain state of the home lending market. "I wonder whether they would be given licences at a time when the Government wanted to support the housing market, as there was no point when it was on the up," he said. "Now there is much more incentive for the Government to provide it." The home loan market is worth about Dh60bn, which is small compared to western markets, but the number of loans is growing quickly. The industry is seen as an important engine of the economic growth plans across the Emirates.
About 200,000 new units are expected to be available in the country in the next 18 to 20 months. On the basis of an average price of Dh2 million for each unit, the market would have to make available more than six times of its total size - Dh400bn - within this period, according to Mahboob Murshed, the managing director of Alpen Capital. However, Tamweel, rather than making more loans available, is discontinuing three of its consumer products.
Top Ups, in which a borrower could return to Tamweel and get a cash advance on the increased value of the property, will no longer be available; nor will Soyoulas, aimed at existing home owners who received loans totalling 50 per cent of the value of the property; nor Ysurs, which are soft payment plans where the borrower was allowed lower monthly instalments at the outset. According to Tamweel, the company has simply changed the mix of products "to accommodate the maximum number of clients in the mid-income segment", said Nabil Abou Alwan, the marketing and product development manager at Tamweel. "End users and the middle-income group is our core market and this is what we are targeting," he said. "There is no change.
"It is just that the promotions are over and we are back to original lending policy to continue our business growth." While asserting it has not been affected by the credit crunch, Amlak Finance, the country's largest mortgage lender, says it has become "selective in financing transactions". skhan@thenational.ae afoxwell@thenational.ae