This last day of 2012 has caused quite a stir in the banking industry with the announcement of Central Bank directive to cap mortgages at 50% of the property value. Here we were last week looking at house prices and thinking that finally the property market in Dubai is starting to surge again and we can see some positiveness in buyers and sellers. The growth is nothing like pre-crisis but it looks more sustainable and positive than the 2006/2007 scenario.
Just as banks were finally starting to increase their risk appetite towards lending to UAE consumers, this directive has forced is forcing them to re-think of their mortgage business and how to make it profitable again. In October this year, UAE banks for the first time this year decreased bad loans provisions indicating their positive outlook on the economy as a whole. On the other hand can understand why the Central Bank has decided to be safe than sorry this time round after Non-performing loans (NPLs) were hitting the 20% in times of crisis. The combination of increased in property prices, increase in consumer confidence of the property market and a general appetite to lend again by banks, to my opinion, has caused the Central Bank to reassess the regulations to prevent another over lending situation and non performing loans disaster.
Let’s see how the market reacts in the coming days. It has definitely made our last day of 2012 quite a stir!