Dubai Sets New Mortgage Restrictions

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The Central Bank of the United Arab Emirates issued new rules this week for mortgages, hoping to limit the flow of financing that helped create the property boom-and-bust cycle in Dubai.

Mortgages for property valued at less than 5 million dirhams ($1.4 million) will be capped at 75 percent for foreigners buying their first home. Financing will be limited to 60 percent for foreigners buying a second home.

Property prices plummeted more than 50 percent in Dubai in the wake of the 2008 economic collapse. Many projects stalled when buyers abandoned their purchases. Under UAE law, some buyers faced jail terms for bouncing mortgage checks on unbuilt projects. Some borrowers fled the country to avoid prosecution.

Dubai home prices are soaring again -- up as much as 30 percent in the last year in some neighborhoods - raising concerns that another bubble is forming. In September, the Dubai government doubled transaction fees to discourage speculators.

Regulators initially imposed more stringent mortgage rules last year, but banks complained. The rules announced in December called for a cap of 50 percent mortgages for foreigners on a first purchase and 40 percent for second homes.

Under the new rules, UAE citizens will be able to borrow as much as 80 percent on property valued at less than 5 million dirham and 65 percent on second homes.

But the rules are primarily geared toward expats, who make up as much as 80 percent of the population. Under the new rules, loans will not be able to exceed 25 years and foreigners will need to clear the loans by the age of 65.

Off plan buyers will only be able to borrow 50 percent of the value of the unbuilt home, the regulators said. And the monthly payments for loans cannot exceed 50 percent of the borrower's monthly income.

"In introducing these regulations, the central bank wishes to ensure that banks, finance companies and other financial institutions providing mortgage loans to UAE nationals, GCC nationals and expatriates do so in accordance with best practices," Khalifa Mohammad Al Kindi, chairman of the board of the Central Bank of UAE, told reporters.