UAE property finance industry maturing fast

In a series of interviews conducted with consumers who have used mortgages to finance their homes and industry professionals, researchers from DSL Exhibitions - organizers of the Resale & Rental Property Show (R&R Show), due to be held on the 13th and 14th of April at the Crowne Plaza, Dubai - asked respondents to answer a set of questions to gauge their opinions on the property finance industry in the UAE. R&R Show - Dubai's oldest and only show focusing on the secondary market also features the Property Finance Seminar & Exhibition this year.

"Visitors to the R&R show this year have another great attraction to look forward to where they can get all the property finance advise from some of the best professionals in the country," said Tessa Morris, Marketing Director at DSL Exhibitions. "We conducted this opinion survey to understand the issues that concern the consumers so we could offer this opinion snapshot to our exhibitors."

The opinion survey:

1. Are there enough choices available in the UAE property finance industry in terms of choice of mortgage providers? What are your predictions for short term and long term?
Most of the respondents (42 out of a total of 56 surveyed) said that in terms of number of companies, UAE presents a competitive scenario.

Media reports have already estimated the size of the property mortgage market to touch AED 17.5 billion in 2007, with the home finance sector itself registering a 64% growth, up from AED 7 billion last year to an expected figure of AED 11.5 billion this year. Bassam Ghani, who financed his villa in the Springs through Amlak said: "I bought my villa directly from Emaar, and since they recommended Amlak, I chose them. But I did shop around since almost all banks now offer property finance products."

Mohana Rao, International Business Development Director at Ideal Management Essentials (IME), who have organized the Property Finance Seminar & Exhibition at the R&R this year, said: "In the short term all banks will offer property finance services - however in the long run the financial institutions will begin to design tailor-made products to better suit their customer's requirements such as payments terms, tenures, minimum salary requirement, down payments, charges and so on."

Abu Dhabi Commercial Bank, Emirates Islamic Bank, Mashreqbank, Standard Chartered, Capital Hill Brokers and The National Bank of Dubai are all offering mortgage facilities for customers interested in buying residential property in Dubai and buy to let accommodation as well. A majority of respondents also agreed that in the short term property finance companies will jostle for market share but over the longer term, increased competition will result in providers creating more competitively priced mortgage products and keeping interest rates as low as possible, thereby creating a stable market.

2. Do you think the mortgages are designed to be affordable for the middle segment of the consumers?
A 100% majority agreed that with prices of property where they are right now, a middle income family just cannot afford to get a mortgage in Dubai at the moment. Adilane Sakane, who lives in a tower in Dubai Marina elaborated: "A basic 2-bedroom apartment costs AED 2 million right now. Over 25 years, the minimum reducing interest mortgage will cost at least another 4 million. That's six million dirhams, over 25 years - tell me, which middle income person can afford to pay twenty thousand dirhams per month?"

On the same issue, one respondent in a previous survey conducted by DSL Exhibitions said that in the UK, average mortgage repayment as a percentage of average household income has remained between 15% and 20% for the last 20 years*, never exceeding 25%. "If the same conditions are replicated in Dubai, most people will prefer it to buy properties on mortgage than rent homes," he said.

>b>3. Are the products innovative enough and serve the needs of the consumer?
Most respondents agreed that the property finance industry has still to mature here by offering both innovation and flexibility. Nearly 70% (16 out of 23) respondents agreed that the market is still in its infancy. Mature mortgage products such as interest only mortgages and hybrid adjustable rate mortgages that allow purchase of insurance against interest rate risk are still unavailable here, although Tamweel's 'Yusr' and HSBC's 'flexi home loan' were cited by some respondents as indicators that the market is moving towards sophistication.

Owen Belman, Head of Consumer Banking, Standard Chartered Bank said: "Standard Chartered Home Loans are carefully designed to offer customers the financial support they need with the maximum convenience and choice. That's why we have partnered with leading real estate developers to provide our customers with a wider range of property options to choose from."

However, lack of consumer knowledge, both about the intricacies involved in evaluating a mortgage plan as well as comparing apples to apples was stated as a reason why mortgage companies are not being 'pushed' to introduce such products.

4. Is there a danger of a large number of mortgage defaulters dragging down the banking system into meltdown? Do you think the industry is being adequately regulated in this regard?
The answers in this segment were as varied as the respondents. While 6 of the respondents said they did not have enough knowledge about this to comment on it, 12 respondents said they were 'sure' that the authorities were doing enough to prevent a collapse in the mortgage market and its adverse repercussions on the banking industry. However, there were a number of interesting observations and comments by others.

Aniruddh Saxena, a banker, said that 100% finance was a dangerous trend, which - if offered on too many transactions and properties - could have serious repercussions for the economy as the bank's exposure is too high in such a deal - "80 to 90% is the maximum that should be allowed," he said. Another respondent, who declined to be named, said the mortgage industry should be more actively regulated as this would "stop financial delinquency at its source." Gabriele Al Butti said that stricter regulation should also be placed on developers to not hike up the price of the property after the sale and mortgage deals are signed and sealed - such instances have been reported by the media in the past and this kind of unethical practice can "have the greatest impact on a mortgage's fulfillment or failure," she said.