Saturday, August 18, 2007

Mortgages, much in demand in Dubai

mortgages in dubai
With the increase in property and property prices in Dubai, the demand for mortgages is also rising simultaneoulsy. The home loan and finance service providers have a major role to play in the current Dubai realty sector.

Although, obtaining finance was a littly tricky in the past, the market has improved considerably in recent times.

Banks wish to give mortgages, but are not prepared to accept high risks. When a credit history or credit scoring system is absent, banks have had to find their ways to obtain loans for their clients, through evaluation of risk against the property value, while also assessing the individual's monthly income and visa status.

More number of international companies are now making their presence in the local market, and the competition is getting tougher, which is only good for buyers. In the opinion of some investors, when compared to developed markets such as US and UK, where the interest rates on mortgages are very low with four to five percent, the finance options in Dubai are more expensive. The reality is that at about 8-9 percent, the rates are at a moderate level in comparison to less developed countries, where people pay even up to sixteen percent as interest. For instance, in India, an investor is expected to pay atleast 12 percent as interest rate, which points towards Dubai as a better option.

The lenders in a competitive market have no option but to compete on price, and hence cut down the rates, unlike the Central bank, which has a definite role in handling the interest rates.

While considering a purchase over a time period of fifteen to twenty years, even a slight difference in the borrowing rate, could make a huge difference to the buyer. Unlike in other countries that have a credit reference agency, which tracks the credit history of its residents before processing a loan application, the transient nature in Dubai has brought about some troubles with lending and financing. In Dubai, people come and go all the time and the lenders are at a loss to gain information on the credit history of the borrowers. This has increased the risk involved in lending.

However, the establishment of Emcredit, the first independent credit bureau in the UAE, is an exciting news for the market. This encourages more lenders to the market and helps them in making more informed decisions. However, for a system such as Emcredit, to be successful, there should be great collaboration from all lending companies and banks.

The increasing numbers of finance service providers, is changing the realty market in Dubai, easing out the task of owning a home. As the market keeps developing by the day, more banks are coming forward to lend with stiffer competition, and the interest rates are expected to drop down. As for a couple of years from now, there is a need for placing more financing options before the public, so as to make the purchase of a home more reasonable.

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