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 USD70 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 percent to just 7 percent, which will pump an additional USD16 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 USD13 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 percent.
So, first-time expat buyers can now increase their loan-to-value (LTV) ratio from 75 percent to 80 percent for properties below USD1.3 million and from 65 percent to 70 percent for properties above USD1.3 million. And for a first time Emirati buyer this would increase the ratio from 80 percent to 85 percent for properties below USD1.3 million and from 70 percent to 75 percent for properties above USD1.3 million.
For both first-time Emirati and expat buyers this would increase the maximum off-plan LTV from 50 percent to 55 percent. So, on an off-plan property valued at say two million dirhams, a first-time buyer, will only be required to raise a USD245,000 deposit, which depending on the developer, in many cases can be paid in instalments, instead of one million dirhams previously, a reduction of USD27,000.
“This makes it easier for first-time buyers to get on to the property ladder,” said bin Sulayem.