A summer of mixed messages for the UAE property industry
It's been a summer of mixed messages for UAE real estate market observers.
News dropped at the start of July that Dubai's sector slowed in the first half of the year with the value of deals done falling 16 per cent year on year, according to reports from the Dubai Land Department.
Amid this downbeat market news, the UAE government buoyed spirits, announcing a 10-year UAE expat residency visa for professionals and 100 per cent foreign ownership of businesses outside as well as inside free zones. Prominent UAE real estate developers praised the new rules, saying they would stimulate the nation's owner-occupier market.
However, following these consumer-friendly policy reforms, the UAE Central Bank announced a raft of new changes in their Amendment to the Regulations Regarding Banks Loans & Other Services Offered to Individual Customers document on June 19, 2018. Amongst a few modest fee reductions on personal loans was a massive home loan fee increase, the tripling of potential early settlement or exit fee on mortgages - from one per cent (capped to a maximum of Dh10,000) to three per cent (uncapped).
A one per cent capped fee gave consumers peace of mind that they could always go somewhere else if the bank was no longer easy to work with or there was a better deal to be had elsewhere. Now, shopping around won't be as easy.
The same Central Bank statement did note that "The fee caps set out in this Amendment represent the maximum permissible charges." That banks must conduct "an examination of the appropriateness of a fee calculation and if applicable, must charge lower fees than those prescribed in these caps."
Good in theory but now two months later, we've already seen a number of banks hike up their mortgage exit fees to three per cent for new and existing customers. It seems they felt that the maximum three per cent fee was appropriate even for loans set up years ago. Disappointing yes, but not surprising.
High mortgage exit fees during the fixed rate period are common throughout the world. A borrower will fix their rate for one to five years to protect them against future rate increases. Should you choose to break this contract during this fixed rate period, it's fair that the borrower is charged a penalty. But I am not aware of any bank in mature markets that charge such hefty exit fees to mortgage borrowers to break a loan outside the fixed interest rate period.
This policy change gives UAE banks far too much leverage over borrowers. This is clearly not in line international industry standards and retrospective tripling of mortgage exit fees will naturally undermine consumer confidence. Warren Philliskirk co-founder at mortgagefinder.ae notes: "If banks apply this to their existing customers, what else can they change in the future? This undermines the sanctity of the contract between the bank and the consumer."
So, the big question remains, why implement such a policy? One could argue that it potentially makes lending more profitable for banks as it gives them more security over their income stream, allowing them to be more competitive upfront, offering loans that are better priced for consumers over the mid to long term. While this is a nice thought, banks are not benevolent societies and will charge what they think they can get away with.
Others may see it as a deliberate handicapping of the secondary market to bolster off-plan sales which are down 28 per cent year to date. Making mortgages less appealing is one sure way to do that.
The UAE now has an abundance of completed freehold stock. Prices have dropped steadily for four years, and prime affordable complete properties in the secondary market pose significant competition for off-plan projects.
Buyers in the secondary market are typically mortgaged end-users who already face a minimum of 25 per cent deposit plus six to seven per cent in purchase costs to get in and now potentially three per cent to get out. Some, in light of this new policy, will be enticed by creative payment schemes offered by developers. Others will choose to buy back home or elsewhere.
If you're a buyer or owner of secondary stock, you may think this is unfair or a bad move by the Central Bank, but if you take more of a macro perspective, if more buyers are directed toward the primary market, this will assist in the completion of infrastructure and support the 18,000+ units expected each year through Expo 2020. For me, this is the reason why.
Now more than ever, you need to read the fine print and shop around for the best possible deal on a home loan. Not all banks are the same.
The writer is chief commercial officer, Propertyfinder Group. Views expressed are his own and do not reflect the newspaper's policy.
News dropped at the start of July that Dubai's sector slowed in the first half of the year with the value of deals done falling 16 per cent year on year, according to reports from the Dubai Land Department.
Amid this downbeat market news, the UAE government buoyed spirits, announcing a 10-year UAE expat residency visa for professionals and 100 per cent foreign ownership of businesses outside as well as inside free zones. Prominent UAE real estate developers praised the new rules, saying they would stimulate the nation's owner-occupier market.
However, following these consumer-friendly policy reforms, the UAE Central Bank announced a raft of new changes in their Amendment to the Regulations Regarding Banks Loans & Other Services Offered to Individual Customers document on June 19, 2018. Amongst a few modest fee reductions on personal loans was a massive home loan fee increase, the tripling of potential early settlement or exit fee on mortgages - from one per cent (capped to a maximum of Dh10,000) to three per cent (uncapped).
A one per cent capped fee gave consumers peace of mind that they could always go somewhere else if the bank was no longer easy to work with or there was a better deal to be had elsewhere. Now, shopping around won't be as easy.
The same Central Bank statement did note that "The fee caps set out in this Amendment represent the maximum permissible charges." That banks must conduct "an examination of the appropriateness of a fee calculation and if applicable, must charge lower fees than those prescribed in these caps."
Good in theory but now two months later, we've already seen a number of banks hike up their mortgage exit fees to three per cent for new and existing customers. It seems they felt that the maximum three per cent fee was appropriate even for loans set up years ago. Disappointing yes, but not surprising.
High mortgage exit fees during the fixed rate period are common throughout the world. A borrower will fix their rate for one to five years to protect them against future rate increases. Should you choose to break this contract during this fixed rate period, it's fair that the borrower is charged a penalty. But I am not aware of any bank in mature markets that charge such hefty exit fees to mortgage borrowers to break a loan outside the fixed interest rate period.
This policy change gives UAE banks far too much leverage over borrowers. This is clearly not in line international industry standards and retrospective tripling of mortgage exit fees will naturally undermine consumer confidence. Warren Philliskirk co-founder at mortgagefinder.ae notes: "If banks apply this to their existing customers, what else can they change in the future? This undermines the sanctity of the contract between the bank and the consumer."
So, the big question remains, why implement such a policy? One could argue that it potentially makes lending more profitable for banks as it gives them more security over their income stream, allowing them to be more competitive upfront, offering loans that are better priced for consumers over the mid to long term. While this is a nice thought, banks are not benevolent societies and will charge what they think they can get away with.
Others may see it as a deliberate handicapping of the secondary market to bolster off-plan sales which are down 28 per cent year to date. Making mortgages less appealing is one sure way to do that.
The UAE now has an abundance of completed freehold stock. Prices have dropped steadily for four years, and prime affordable complete properties in the secondary market pose significant competition for off-plan projects.
Buyers in the secondary market are typically mortgaged end-users who already face a minimum of 25 per cent deposit plus six to seven per cent in purchase costs to get in and now potentially three per cent to get out. Some, in light of this new policy, will be enticed by creative payment schemes offered by developers. Others will choose to buy back home or elsewhere.
If you're a buyer or owner of secondary stock, you may think this is unfair or a bad move by the Central Bank, but if you take more of a macro perspective, if more buyers are directed toward the primary market, this will assist in the completion of infrastructure and support the 18,000+ units expected each year through Expo 2020. For me, this is the reason why.
Now more than ever, you need to read the fine print and shop around for the best possible deal on a home loan. Not all banks are the same.
The writer is chief commercial officer, Propertyfinder Group. Views expressed are his own and do not reflect the newspaper's policy.
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