Bloomberg News

HSBC Eases Dubai Mortgage Lending on Signs of Better Market

June 09, 2011

(Adds real estate index performance in ninth paragraph.)

June 9 (Bloomberg) -- HSBC Holdings Plc is making it easier for homebuyers to get loans in Dubai as one of the world’s worst-performing real estate markets shows signs of improvement.

HSBC Bank Middle East Ltd., the Dubai-based unit of Europe’s biggest bank, reduced interest rates on 25-year mortgages by 76 basis points to 5.49 percent, said James Pearson, the 37-year-old head of assets and liabilities. The company also lowered its down-payment requirements.

“We are seeing more demand this year. Absolutely,” he said in an interview. “We’re also seeking out more demand.”

Mortgage financing in Dubai ground to a halt after the global credit crisis caused prices to plunge by more than 60 percent and forced the United Arab Emirates’ two biggest mortgage providers to stop lending for almost two years. An improving economy has helped end a slide in property values in completed developments such as Palm Jumeirah, Emirates Hills and The Greens in the last six months, encouraging banks to increase lending, Pearson said.

Mortgage delinquencies and defaults at the bank are “improving,” he said. Impairments on all U.A.E loans fell by half in 2010 from the year earlier, according to HSBC Middle East. The unit had $24.6 billion in loans and advances to customers in the Middle East and North Africa last year.

Smaller Down-Payments

The bank increased the amount of money it’s prepared to lend to house buyers to as much as 80 percent of the property’s value from 70 percent. The loan-to-value ratio for purchasers of apartments is about 70 percent because a “significant” increase in supply in 2011 and 2012 will put pressure on prices, Pearson said in last week’s interview.

HSBC Middle East also lowered its monthly salary requirement for borrowers by 25 percent to 15,000 dirhams ($4,080), he said.

Jones Lang LaSalle Inc. estimates that 54,000 homes will come onto the market in Dubai from 2011 to 2015. That’s about 15 percent to 20 percent of the existing supply, according to Jesse Downs, director for Middle East and North Africa at the property broker.

The Dubai Financial Market Real Estate Index, which includes shares of five developers, gained 0.6 percent at 3:15 p.m. in Dubai trading. The measure fell 9.6 percent this year.

Mortgage demand has plummeted since the days of Dubai’s property boom, when speculators frequently bought yet-to-be- built homes and sold them at a profit before a single brick was laid. These days most loans are for completed properties in developments with infrastructure and facilities.

Mostly Homeowners

Pearson said his company lends mostly to owner-occupiers who want to refinance existing home loans as well as a small number of investors.

While there is a gradual increase in U.A.E. mortgage lending, the market is far short of a real recovery, said Tarik El Mejjad a London-based analyst for Nomura International Plc.

“There is competition over interest rates and banks are trying to resume mortgage lending, but it’s not really happening,” he said. “Loans have been contracting for most of the banks. They are all shopping for the very best customers and there aren’t many of them.”

Tamweel PJSC, which along with Amlak PJSC provided almost 90 percent of all mortgages in the country by mid-2008, resumed lending in October after a two-year halt. Dubai Islamic Bank in September increased its stake in Tamweel to 58.3 percent from 21 percent in a government-led rescue.

Tamweel now offers a 25-year, 80 percent Islamic mortgage at 5.75 percent profit rate to buyers in selected areas. A U.A.E. government committee is still considering ways to reorganize Amlak.

More Price Declines

House prices are likely to decline by an additional 10 percent to 15 percent next year and service fees levied by developers for maintenance of common areas will continue to prevent a significant recovery, El Mejjad said.

“We are back up to a better, more normalized market position,” HSBC’s Pearson said. “I still think there is more growth to come because the stabilization needs to play through to give customers more confidence.”

Economic growth in the U.A.E. will accelerate to 3.3 percent this year from 3.2 percent in 2010, while Dubai’s economy will grow by 3 percent, according to the International Monetary Fund. Dubai GDP increased by 2.2 percent last year, according to the emirate’s statistics bureau.

“With the U.A.E. returning to projected strong growth in gross domestic product, we’re looking for the housing market to track or slightly exceed that,” Pearson said.

House price growth is needed to help restore demand, Pearson said.

“It doesn’t need to be 50 percent growth,” he said. Two percent or 3 percent would be enough “to give the sense that it’s a normal market, where house prices may appreciate with inflation.”

--Editors: Ross Larsen, Christine Maurus.

To contact the reporter on this story: Zainab Fattah in Dubai on

To contact the editor responsible for this story: Andrew Blackman at

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