Free space

Reserve banks in mortgage financing

Abdul Karim Mulla

October 11, 2020

The strictness of banks in mortgage lending is considered one of the problems facing the real estate sector, despite the incentives provided by the state to the sector, and despite the facilities provided by the Central Bank, banks are still stressing the issue of housing lending, whether to residents or citizens.

This approach by the banks is considered harmful to the rotation of the wheel in the real estate sector, as the banks must pump more liquidity into the real estate sector, to provide incentives in the market, so that any investor who has the desire to buy a property, it always collides with a large list of requirements that it sets. Banks on a mortgage.

The matter here is not only related to individual investors, but also shared by companies.

Also, despite the presence of large liquidity in the banks, it is not easy to provide financing to companies that operate in the real estate sector.

The position of the banks is very wrong because it works to disrupt the economic cycle of one of the important sectors to which dozens of activities are related to which thousands of people work. Here, pressure must be made by the responsible authorities, especially the "Central", to urge banks to expand the lending process, and facilitate this matter for individuals. Those wishing to invest in real estate and companies operating in the sector, so easing financing restrictions by banks will benefit the sector, because it will work to dry up the surplus real estate supply.

Among the problems facing the sector with banks is the low ceiling of real estate financing. Here, a step must be taken, after the Central Bank has raised the ceiling for real estate financing in the market for citizens and residents, which is the banks ’move by launching new financing programs to attract more real estate investors, especially since raising The ceiling will establish "demand" from investors.

Undoubtedly, the recent raising of the lending ceiling by the Central Bank has contributed to boosting demand, although there are caveats that it may harm the market in the long run, but it is considered one of the financing solutions that work to stimulate the market, and to be completed, By easing procedures, and reducing guarantees.

But the problem here is that banks are still continuing to pursue conservative credit policies towards financing in general, and banks must take advantage of the transformation in the real estate sector, especially with the tendency of many residents to own property, with the need to direct financing to the middle segment of buyers who wish to Buy their first home.

Banks in the UAE do not provide sufficient support in light of the current market conditions, as risk managers in these banks think that increasing the facilities may open the door to other potential risks, and this is considered wrong, as the property is a guarantee for the bank in the event that conditions worsen and the dealer fails, and here It must be seen that the market needs to encourage a wider group of investors to enter it.

Finally, banks must review their profitability in terms of real estate loans, and it is very important in the current situation to reschedule real estate debts, in line with the decrease in real estate unit income, in conjunction with the decline in the real estate investment return in the market, due to the rental correction, as a contribution from it to pay The wheel of the national economy.

CEO of "Standard Real Estate Management Company"

To read the previous articles of the writer please click on its name . 

Banks should review profitability and reschedule mortgage debt.