UAE markets under pressure on home loan cap
Abu Dhabi, January 1, 2013
The banking and property stocks in the United Arab Emirates' bourses are expected to come under pressure after the central bank decided to cap mortgage loans for foreigners and nationals.
The UAE central bank has decided to limit home loans for expatriates buying residential real estate to 50 per cent of the property's value, while introducing a 70 per cent cap for UAE citizens, sources told Reuters.
"Some banks that are known for mortgage lending will see a negative reaction initially," says Mohammed Ali Yasin, managing director at NBAD Securities.
"Dubai-based banks and mortgage firms like Tamweel will also be impacted. However, these will be initial reactions as, in the long term, the new guidelines will bring more stability to the banking sector and the industry."
The new rules were contained in a circular issued to commercial banks on Sunday. Details are still unclear, and it is not yet known how strictly the rules will be enforced.
About 40 per cent of bank lending in the UAE is to real estate firms, Yasin said.
The central bank's move appears to be an effort to ensure that another bubble in UAE real estate does not develop. Property prices plunged by more than 50 per cent between 2008 and 2011, triggering a corporate debt crisis in Dubai that forced the restructuring of billions of dollars of debt.
Egypt's market may continue to attract buying by foreign investors despite weakness of the Egyptian pound, which dropped to a record low on Sunday as authorities appeared to have shifted to floating the currency instead of spending large amounts of foreign reserves to support it.
The stock market held up well on Sunday, ending 0.5 per cent higher, suggesting currency depreciation has been factored in by many investors who remain optimistic about the longer-term outlook for the economy.-Reuters
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