Secondary mortgages suspended!

[Gashead]

Dubai Bank today suspended all approvals of mortgages for secondary market purchases. Until further notice they will only lend for off plan developments. Several other banks followed suit.

Lloyds TSB were still offering mortgages on the secondary market this morning but wouldn't say for how long.

The crunch is here!

 

[Gashead]

As I said, Dubai Bank told my colleague when they cancelled his mortgage application this morning. Lloyds TSB in Jumeirah told me they 'were aware certain other banks had stopped lending in the secondary market today but we have not received any instruction yet'.

I've had 25 years in construction, I don't 'give up' that easily!

 

[Wannaberich]

Find this hard to believe.If correct it would be a huge blow for the property market and prices.

 

[Fran]

.....let alone the newly introduced regulations by RERA in the last 2 months regarding property transfers and mortgage registrations; or the massive projects launched during the Cityscape last week!

If the CRUNCH wants to come, we won't let it in !

 

[Gashead]

"..... the banking sector in the country is strong and the capital reserve has reached at 13pc, much above the 8pc level approved the Basel Convention.

....the total mortgage lending by the banks in UAE does not exceed 11pc of the total assets and 18pc of the total deposits. This is clearly below the 20pc level approved by the law."

Fran, I don't doubt you that they are generally lending below the max (if they haven't learned their lesson by now we're all in trouble). It doesn't mean they have to lend up to the max though.

Anyhow, why not call a branch of Dubai Bank tomorrow and ask? We'd all be interested to hear what they say. I wasn't really posting to start a discussion as it wasn't an opinion, just what two banks branches told me and my colleague this morning. I believe Lloyds aren't the only ones still considering loans on secondary properties though... maybe the commonality is whether the banks are UAE or foreign? But Lloyds comment on other banks indicated Dubai Bank weren't the only bank to cease lending to the secondary market today.

 

[Gashead]

Find this hard to believe.If correct it would be a huge blow for the property market and prices.

I'm no economist but how about this for an argument?

By limiting finance availability in the secondary market whilst retaining it in the primary market you maintain demand for off-plan projects therefore guaranteeing continuing income to the Sovereign Wealth Fund.* You also lower inflation by reducing demand in the secondary sector. Hally wally.

Don't you think this would have been one of the deals done for the billions pumped into the banking sector?

*Yes I know they say they're not a SWF but you get the idea.

 

[Wannaberich]

Have you heard that secondary mortgages are temporary suspended? : Dubai Chronicle

Secondary mortgages suspended?Bollocks !

 

[Wannaberich]

If ever banks suspended secondary mortgages,obviously prices for these units would nosedive.These units,completed/under construction would then become cheaper than off-plan.How ridiculous.Therefore, anyone with any sense would wait for the day these mortagages are re-introduced,then snap up a completed unit before the price shot up again.However,this in turn would make the prices for off-plan nosedive to the point that the developer would not be able to charge what was required to make his development profitable.Off-plan launches would diminish.Many projects abandoned.
Anyone disagree?

 

[Gashead]

If ever banks suspended secondary mortgages,obviously prices for these units would nosedive.These units,completed/under construction would then become cheaper than off-plan.How ridiculous.Therefore, anyone with any sense would wait for the day these mortagages are re-introduced,then snap up a completed unit before the price shot up again.However,this in turn would make the prices for off-plan nosedive to the point that the developer would not be able to charge what was required to make his development profitable.Off-plan launches would diminish.Many projects abandoned.
Anyone disagree?

I think there are already off plan properties being sold for more than comparable built ones?

I understand your point but in a way it seems to prove mine. A couple of years diverting demand to off plan (which due to late completions is in bad need of funding) and then the attention can shift back to the secondary market. Good trick if you can pull it off.

Anyhow as I said I'm no economist but one thing I do know is that you can believe and virtually prove polar opposites.

 

[Gashead]

"I'm no economist but how about this for an argument?

By limiting finance availability in the secondary market whilst retaining it in the primary market you maintain demand for off-plan projects therefore guaranteeing continuing income to the Sovereign Wealth Fund.* You also lower inflation by reducing demand in the secondary sector. Hally wally.

Don't you think this would have been one of the deals done for the billions pumped into the banking sector?

*Yes I know they say they're not a SWF but you get the idea."


A bad guess: limiting the finance availability for the secondary market means the small investors (speculators or smart-like prop guys and girls ) struggling with the installments and selling short with no premium or bellow the purchase price.
On larger scale the result looks like that: Khaleej Times Online - Dubai Islamic Bank Takes Over Plantation’s Land Assets

Maybe you have a valid point:
DIFC launches real estate investment fund : Dubai Chronicle
GIH launches $500m GCC real estate fund | Global Investment House
which means that the local Governments will cash in on the financial crisis and all of the more than 80% of expats will.....just a bad guess...

Whatever the case, is not good for people like me...and we must investigate tomorrow at earliest

Well perhaps give your bank a call Fran, my comment about 'certain other banks' suspending secondary mortgages came not from those banks themselves but from Lloyds mortgage dept.

Personally I'm a very small investor here (two properties and mortgages) but I work in construction in Dubai. I guess the best news for me would be a cooling down in the 2dy market giving continued growth in the primary market (if they are mutually exclusive?)... most people like me would say their income is more important than their assets. I've got both feet, all my eggs and several chickens firmly in the same camp, most people don't.

Anyhow, any feedback would be cool. Glad a subject like this can be discussed on this forum without people spitting their dummies out!

 

[Wannaberich]

I think there are already off plan properties being sold for more than comparable built ones?

I understand your point but in a way it seems to prove mine. A couple of years diverting demand to off plan (which due to late completions is in bad need of funding) and then the attention can shift back to the secondary market. Good trick if you can pull it off.

Anyhow as I said I'm no economist but one thing I do know is that you can believe and virtually prove polar opposites.

I'm not sure how my point proves yours.
When you say a couple of years diverting money to off-plan,to the banks this is irrelevant.They dont exist to control the Dubai property market and I doubt would be interested in doing so.The ruler however would be.
From his point of view it would be very very bad PR for him if he had a hand in a move to suspend these mortgages after inviting people from all over the world to invest.
As I said,any move to halt the sale of completed properties etc would have a pretty bad effect on the market and will not happen.
A far better way to control oversupply etc would be for the ruler to put a stop to any more launches for a period of time.
As for this suspension.This would be big news by now and all over Gulf News/Arabian Business etc.As it is not we have to take it with a pinch of salt for now.

 

[Gashead]

OK. As far as I am aware Emirates Bank and Dubai Bank will no longer approve any mortgages in the secondary sector. If anyone can confirm that I'd be grateful (although Dubai Bank did confirm it to me on the phone yesterday).

 

[Fran]

Abu Dhabi Commercial Bank (ADCB) has no problems financing properties from the secondary market.

Also the mortgage adviser from Dubai Bank branch on the Bank Street told me over the phone that they are approving mortgages for properties from the secondary market from the registered with them developers.

 

[Wannaberich]

Personally I'd like to see a suspension on mortgages for off-plan.
Like alot of people I feel there is too much being launched.Developers are not concentrating on developments under construction like they should be.
This would also help to control the oversupply and price correction that will surely come.

 

[Gashead]

Abu Dhabi Commercial Bank (ADCB) has no problems financing properties from the secondary market.

Also the mortgage adviser from Dubai Bank branch on the Bank Street told me over the phone that they are approving mortgages for properties from the secondary market from the registered with them developers.

Sorry Fran, I don't understand the last line.

 

[Fal Pat]

I do not agree with those who are suggesting that the decision to not lend to secondary buys and only for off plans, if at all true, is because the government wants to boost the new launches and does not want to support secondary market to cool inflationary pressures. Please bear in mind, no new product can sell in this world without a robust secondary market for it. Thus if the finance is available for off plans and not for secondary buys, who do u think will buy those off plans in the first place? Surely, investors need finance to buy from secondary more than buying directly from the developers because of the increased initial outlay involved. Also, I see no reason why a bank would want to finance only the off plans and not the secondary buys. The credit worthiness of an investor does not change in either of the cases. I can understand if the banks become more stringent in approving the loans, they might even update their list of developers whose properties they would like to finance etc.

In any case, this global credit crunch is surely going to cool down the property market in UAE too.

 

[Wannaberich]

What will cool down the property market is when capital gains tax is introduced.
These guys buying blocks of units at launches,then selling 3 months later for a profit will stop,otherwise they will have to pay around 40% tax.Then there's all those small investors out there who will stop buying also.

 

[Fal Pat]

So you mean to say, the property market is not in a cool down mode already? Do you think the property market will wait for the intoduction of Capital Gains tax to cool off? Also, if at all the govt is planning to introduce anything like that, the idea will be put on shelf atleast for the time being till the dampened sentiments are warmed up again. As what I see, it is in the interest of the UAE govt to keep the property market upbeat as it is the major contribution in UAE's GDP. At the same time, they do have to keep the prices under some control for the inflation to not get out of control. But currently without any action from the authorities, their objective of taming the wild property market is being achieved, thanks to the Global credit crunch. Yes, the Govt has a lots of tools in their hands to affect the property market in UAE negatively or positively depending on what the need of the hour is. Currently the trend is not very clear where it is going. Probably it is just flat. But one thing I am sure of is the Govt will intervene in case of sudden drop in interests in the property market and will introduce factors which will boost the market. That's my take on the current scenario.

 

[Wannaberich]

I understand it that CGT is def on the way.Maybe like u said,it will be delayed.
Personally I think its still a little early to know what condition the market is in.
Apparantly,there were more land registrations during cityscape 2008 then in 2007.
As for the gov controlling things,havent seem that much evidence.
I think the best way to avoid a correction right now is to limit the amount of new launches.
Slow down oversupply.Let developers concentrate on what they are constructing now and then 6/12 months down the line let them launch again.

 

[JOHNNY-D]

well said, DoBuy.
i totally agree with you that they should hold the new launches and keep on constructing and finishing what they have sold to people like us! we're paying for something we don't have!