Saturday, March 28, 2009

Lack of mortgage lending may plunge property prices further

Property prices in the UAE are likely to drop further, if the banks continue to hesitate to begin mortgage lending.

The Managing Director of Gulf Lenders Network, Damian Hitchen, also a master broker, expressed his opinion that once the finance and liquidity flows into the market, it will help soften the price correction, and property prices will not drop further.

This is particularly true as far as Dubai is concerned, as it is here that the prices have dropped the most, said Hitchen.

"The overall portfolio exposure by the banks, are getting worse by the day, and the banks are likely to have real problem. By stopping lending, they are increasing default cases and worsening the situation," he commented.

The banks across the UAE have greatly reduced lending, despite the demand for mortgages. Banks have suffered lack of liquidity, as international banks have pulled out their funds following the collapse of Lehman Brothers. With this, the loan-to-deposit ratios of several banks are much higher than the 100 limit, and they are now seeking to reduce the ratio by collecting deposits and restricting lending.

Hitchen said that the demand for mortgages has regained momentum and his network is currently processing more requests than during the summer 2008, when the prices were at their best.

The banks need to be more "vocal" about their requirement for assistance. The Government should initiate more effort to assist the banks with sufficient funds, provided, they lend it back into the market. The Banks, will have to report back to the Central Bank every month, regarding the purpose for which the money was utilized, he explained.

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