UAE realty brightens prospects for mortgage sector
This week, we will talk in a nutshell about the mortgage sector, the industry that is doing an extraordinary business in the UAE. The UAE home finance sector is prospering in the wake of the ongoing property boom in Dubai, Abu Dhabi and Northern Emirates. Therefore, it is important to throw some light on the profitable business of mortgage lending in UAE where almost all home finance providers are going through a continued phase of prosperity.
Mortgage is a loan offered to finance the purchase of real estate, usually with specified payment periods and interest rates. The borrower (mortgagor) gives the lender (mortgagee) a lien on the property as collateral for the loan. 
According to the Central Bank, the mortgage lending in the UAE has almost doubled year-on-year mainly due to growing housing demand and construction boom. The quarterly reports prepared by Central Bank stated that total home loans at the end of December 2007 were worth AED 58.86 billion compared with AED 31.02 billion a year earlier. Currently, the home finance in the UAE stands at AED 20 billion and would touch AED 64 billion in the next 3 years. 
Dubai alone has experienced tremendous growth in its home finance sector in the past 3 years, reaching AED 37.3 billion at the end of the first quarter of 2008, a growth of more than 13 per cent from a year earlier. This growth will continue for it to touch AED 46.1 billion by the end of this year.
According to Global Investment House, Kuwaiti investment firm, the UAE mortgage sector is expected to double during the next 4 years to reach around AED 80 billion by 2012. Currently, the market is worth between AED 35-40 billion, equivalent to 5 per cent of the UAE's GDP.
The increasing demand for housing, establishment of secondary realty market, increasing rents, introduction of mortgage law & other property laws and negative real interest rate environment are the main drivers for the positive outlook for the real estate sector and, consequently, the housing finance market. In 2007, real estate sector constituted 8 per cent of the UAE's GDP (AED 55.8 billion), i.e., an increase of 21 per cent year-on-year while the construction sector represented 8 per cent. Almost AED 1.83 trillion worth projects are to be delivered in the UAE during the next few years.
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An increasing number of property investors are becoming more reliant on mortgages to purchase property in the UAE. Almost 71 per cent of UAE investors now require a mortgage to finance their property purchase, according to a recent property survey. Mortgage lending in the UAE jumped 55 per cent as total home loans reached AED 64.95 billion by first quarter of 2008 compared with AED 41.8 billion a year ago. The recently introduced Mortgage Law would not only benefit Dubai's growing property sector but would prove immensely beneficial for the mortgage sector. The opening up of the real estate market to foreigners to own properties in the UAE has given a big boost to both real estate and home finance sectors. Moreover, with the real estate sector peaking all the time in UAE, property ownership would serve as an ideal investment option. Easy and convenience of accessing mortgage is another aspect that would keep the home finance sector in good health. The UAE mortgage market is projected to grow 220 per cent in the next 3 years. Therefore, we can safely conclude that the future of real estate sector in the UAE is really bright with no signs of recession. While the boom in the UAE real estate market will continue, it will also accelerate the growth in the housing finance sector. |
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