Sunday, January 21, 2007

High Mortgage demands in UAE results shortage of Housing Finance

According to recent reports by EFG-Hermes, an investment Bank, the growing population, combined with strong mortgage demand has temporarily resulted in shortage of Housing Finance.

The shortage is mainly believed to be due to the constraints faced by Tamweel and Amlak Finance, which accounts for 25 and 35 percent of the market respectively and the remaining forty percent is divided among number of other Banks providing housing finance. Both Tamweel and Amlak have already applied for a Banking License, which, if granted, will permit them to enhance their lending business.

The report states that the demand could have been even higher, if all the project deliveries had been completed on time, and in such a case, the housing finance market would have faced a tough time in keeping pace with the demand due to funding problems.

As per estimations from EFG-Hermes, the total outstanding housing loans were Dh.11.5 billion during end of September 2006. Due to factors such as a booming economy and real estate market, sudden increase in population in the UAE, an environment with low interest rates and due to the change of regulations in the property market, the market was immensely benefited.

Reports indicate that the house finance sector in the UAE will witness an increase by Dh.14bn in 2007, Dh.18bn during 2008 and 2009, Dh.14bn in 2010 and Dh.17bn in 2011. According to EFG, the large number of units waiting to be delivered will come into the market during 2007, 2008 and 2009 due to the delay in deliveries during the past years. EFG believes that due to this significant increase in the number of housing units, occupancy rates may fall, and hence the off-plan buyers could possibly sell their properties due to funding constraints, rather than bearing the risk of owning empty houses in a market that is relatively soft.

This could put pressure on the prices of the property, and hence beginning 2008, the softening is likely to take place. EFG also expects an increase in property development in Abu Dhabi rather than Dubai in the years after 2009.

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