The property bubble in Dubai could reemerge just as the UAE appears to be on the brink of recovery. Dubai’s central bank has placed new restrictions on home purchases by foreigners, who can now only receive up to 50 percent of the home’s value in their mortgage.
Mortgages in the United Arab Emirates and Dubai will be limited to half of a home’s value for foreigners who wish to invest in the nation’s real estate market. Foreigners who wish to purchase a second home in the country can receive only 40 percent of the home’s value in the mortgage from Dubai’s central bank. Bloomberg News reports that citizens of the UAE can receive up to 70 percent of their home’s first value in a mortgage and up to 60 percent for their second.
ValueWalk reported on the UAE’s housing bubble in 2011, and this new restriction on mortgages for foreigners could threaten the nation’s recovery in home prices. Government estimates indicate that more than 80 percent of the population in the UAE consists of foreigners.
When the global financial crisis began, home prices plummeted 65 percent in Dubai, but the market has been showing signs of recovery. In November the city’s ruler announced some major new developments like a district which will contain the largest shopping mall in the world and a collection of theme parks.
Economists in Dubai expect that real estate deals could drop 60 percent, while home prices could slump up to 20 percent, which would be a 10 percent decline in half a year. In the long term, some experts feel that the new lending restrictions set by Dubai’s central bank will strengthen the property sector by drawing in serious buyers.
Dubai’s real estate market only opened to foreigners in 2002, allowing investors from Russia, Pakistan, India and Iran to make a profit by purchasing planned property upfront and then reselling it after the value of the property rose.
Thus far a date has not been set for these new restrictions to be put into action.