- Bank reserve requirements halved to increase liquidity, grant relief on existing interest payments and extend lending
- LTV ratios revised to help investors
- Additional 10% exposure to the real estate industry, will further support the market
The recent announcements by the UAE Central Bank, introducing packages aimed at stimulating the economy, will benefit the real estate sector significantly, according to Abdulla bin Sulayem, CEO of UAE-headquartered upscale residential, hospitality and commercial property development company, Seven Tides.
In total, the central bank has now pledged AED 256 billion to stimulate the economy and mitigate the economic impact that the COVID-19 outbreak is having on the UAE.
However, in its most recent move, the central bank has also reduced the reserve requirements for demand deposits for UAE banks, by half, from 14% to just 7%, which will pump an additional AED 61 billion into the financial system, improving liquidity and underpinning the banks’ ability to extend their lending further still.
As previously announced, banks will also have access to a AED 50 billion fund, offering capital at zero interest to help them extend more finance to the market. This will also enable banks to offer relief to existing borrowers by deferring principal and interest payments, until December 31, 2020.
"The increased liquidity, will also enable banks to offer and compete for new loans and mortgages in the market, as well as supporting their existing customers. It is crucial for the real estate sector that developers and investors have continued access to funding,” said bin Sulayem.
Another positive step is the increase in the loan-to-value (LTV) ratio applicable to mortgages for first-time buyers. This has been increased by up to 5%.
So, first-time expat buyers can now increase their loan-to-value (LTV) ratio from 75% to 80% for properties below AED 5 million and from 65% to 70% for properties above AED 5 million. And for a first time Emirati buyer this would increase the ratio from 80% to 85% for properties below AED 5 million and from 70% to 75% for properties above AED 5 million.
For both first-time Emirati and expat buyers this would increase the maximum off-plan LTV from 50% to 55%. So, on an off-plan property valued at say two million dirhams, a first-time buyer, will only be required to raise a AED 900,000 deposit, which depending on the developer, in many cases can be paid in instalments, instead of one million dirhams previously, a reduction of AED 100,000.
Furthermore, in terms of funding, banks will now be allowed to increase their exposure to the real estate sector from 20% to 30%, with banks being required to hold additional capital if they surpass the 20% exposure threshold. Again, this will provide additional liquidity for both real estate developers and investors.
“Add to this attractive borrowing rates and other promotional discounts currently on offer, should help to reinvigorate the real estate sector over the short term,” added bin Sulayem.