![The rise in the real estate interest rate in the UAE will have serious implications for real estate companies. [Mosab Omar/Reuters]](/shared/images/2011/08/02/110802-feature-2-photo-650_416.jpg)
The rise in the real estate interest rate in the UAE will have serious implications for real estate companies. [Mosab Omar/Reuters]
Economists say the rise in real estate interest rates in the United Arab Emirates in the past two years will have serious implications for real estate companies, but analysts do not expect it to affect the volume of lending offered by banks to investors.
Bankers announced higher interest rates for real estate finance in the UAE ranging between 7% and 11% compared with 4% and 5% in 2009.
Alaa Eraikat, CEO of Abu Dhabi Commercial Bank, told the UAE newspaper Al-Ittihad recently that mortgages constituted the bulk of bank loan portfolios for years, but the global recession forced banks to diversify their portfolios and adopt a more conservative approach to mortgage lending.
He pointed out that most banks now thoroughly scrutinize financing options and potential customers, factoring in real estate market conditions and investors' backgrounds. He estimates that mortgage rates currently charged by banks are between 7% and 11%.
Fahd Saleh of the Bunyan Real Estate Company, told Al-Shorfa that banks finance between 40% and 80% of the value of the property, stressing that the most important indicator that banks rely upon in granting loans is their level of confidence in the borrower's ability to repay the loan.
"Interest rates rose during 2009 and 2010 with the emergence of many non-UAE national foreign borrowers," Saleh said.
He said the rise in mortgage rates has serious implications for real estate companies, adding that these companies incur increased losses due to erosion of profits caused by the accrual of interest expense and the effects of the fluctuation in interest rates.
Kamran Butt, a banking expert in Dubai, told Al-Shorfa that real estate loans are granted for the purpose of buying real estate, whether for housing or commerce or investment, and are secured by the real property bought or built with those loans.
Butt highlighted the latest data issued by the UAE Central Bank showing an improvement in liquidity levels. He also noted a retraction of the "LIBOR", the interest rate that banks charge other banks, a figure which continues to drop and is currently 73% below the lowest level recorded in 2008. Butt said the drop in the LIBOR is attributable to high bank liquidity and improved investment opportunities for bank funds.
"With the continued decline in LIBOR over the last seven months, there was a noticeable rise in bank loans, which may continue to rise at the same pace. It is possible that bank loans could improve at an accelerated pace even with the high interest rates on mortgage lending," Butt said.
Diaa Abdel-Al, an economic journalist, attributed the rise in mortgage rates to the end of the real estate boom and the fact that interest rates began to exceed the rise in the inflation rate, prompting mortgage banks to raise interest rates on older existing loans, which led to higher monthly installments for borrowers.
"The rise in mortgage interest rates is considered the biggest obstacle to recovery in the sector. Over the past two years, mortgage rates have risen steadily, exacerbating the situation for borrowers," he said. "However, the increase in interest rates curbed inflation and the rise in real estate prices which helped maintain purchasing power in the UAE. In view of that, mortgage rates must be adjusted to return the sector to its previous levels."
Receive our email updates
![Syrian and Lebanese university students stage a peaceful protest in Beirut's Martyrs Square on Tuesday (May 21st). [Courtesy of the sit-in organisers]](/shared/images/2013/05/23/Lebanon-hizbullah-square-90_58.jpg)
![Egyptian girls walk home after a day at school in Cairo. [Cris Bouroncle/AFP]](/shared/images/2013/05/23/Egyptian-school-girl-90_58.jpg)
![Civil society organisations play a crucial role in raising awareness about the importance of insurance, symposium participants said. [Faisal Darem/Al-Shorfa]](/shared/images/2013/05/23/yemen-meeting-insurance-90_58.jpg)
![Dr. Mansour al-Nubi Mansour says his centre gives out scholarships to help Yemeni students study at Egyptian universities, and vice versa. [Faisal Darem/Al-Shorfa]](/shared/images/2013/05/22/Yemen-egyptian-councellor-90_58.jpg)
![A torn poster of Syrian President Bashar Assad hangs in the northern Syrian city of al-Raqa on March 5th following days of fierce fighting. [Mohammad al-Hussein/AFP]](/shared/images/2013/04/19/Syria-assad-raqaa-90_58.jpg)
![Thousands of Iraqi soldiers are participating in a campaign to tighten security on the border with Syria. [Mohammed al-Qaisi/Mawtani]](http://mawtani.al-shorfa.com/shared/images/2013/05/23/iraq-borders-syria-90_58.jpg)
![Iraqi patrols have increased along the Iraq-Syria border. [Mohammed al-Qaisi/Mawtani]](http://mawtani.al-shorfa.com/shared/images/2013/05/22/iraq-border-cell-90_58.jpg)
![An Iraqi National Museum employee guides visitors inside the Assyrian Hall. [Ali al-Saadi/AFP]](http://mawtani.al-shorfa.com/shared/images/2013/05/22/Iraq-national-museum-90_58.jpg)
![Iraqi artists Nibras Hashem, Suha al-Jumaily, Zeina Salem and Zikra Sarsam (from left) are holding a joint exhibition, "Intersecting Paintbrushes". [Courtesy of the Baghdad French Cultural Centre]](http://mawtani.al-shorfa.com/shared/images/2013/05/21/iraq-women-painters-90_58.jpg)
ADD A COMMENT (COMMENT POLICY) * DENOTES REQUIRED FIELD
READER COMMENTS
قاسم بن عدون
2011-9-10
This is not the real reason; the real reason is that the banks want to earn higher interest, because they know that corporations will go back to the banks to take loans in order to build compounds and touristic commercial places, which relates to the movement of construction and real estate in general and everything related to them. These are the banks’ trades, nothing more and nothing less, especially since the UAE is one of the countries with the most appeal to many investment corporations, and it has a very strong and tough economy.
حاتم عصام
2011-9-6
The real estate sector in the UAE is one of the best real estate sectors in the entire region, through the recovery which it is witnessing. It has contributed to attracting a lot of companies and investors to the UAE to work and invest there, by establishing construction projects. They have contributed to building this country and making advancements in both the urban and residential sectors. So, I believe that after that recovery in the real estate sector in the UAE, I think that this sector at present, and as per the analysis of the economic analysts, will see a significant decline, because of the remarkable increase of the interest rates in financing real estate, which the working companies get in the UAE. A lot of investments and companies believe that the rise in interest rates, which have gone up to about 11%, is very harmful to them and their companies, even to the accomplishment process of projects. I agree with the opinions of the analysts regarding this issue. The rise in real estate interest which is imposed on the investment companies will definitely affect the development of the real estate sector in the UAE. A lot of investors have stopped accepting the rise in the interest rates which the banks that finance them impose, in order to continue the residential and construction projects. This is very harmful for the investment companies. I believe that this is because of the economic and financial crises which the whole world is witnessing, and which has affected the real estate sector in the UAE. The interest rate cannot stay the same in the real estate sector, because it will contribute to stopping the decline of this sector, and it cannot reach the expected change which a lot of workers from the Emirates were waiting for in this important and vital sector.
مطر صيف
2011-9-5
I am against the interest rates used in financing the real estate sector in the UAE because interest in finance is called “Riba,” i.e. usury. Therefore, this topic has many secondary parts and directions that some people agree on, while others disagree. As such, the issue of the increase in the price of interest in the real estate financing in the UAE needs to have some reorganization and needs for work to be done in a way accepted by everyone without holding back, because the money coming from interest is prohibited for some people, which makes it useless money. This money is considered “Riba”; therefore, I don’t accept projects being established in an Islamic country with money coming from the increased interest rate of real estate financing in UAE. This opinion is controversial for many citizens, as some of them accept this and some of them consider it prohibited in the first place and think of the money coming from this way as money that cannot be used in transactions.
medooo
2011-9-1
It is the duty of the governmental officials in the real estate sector to review their accounts and see what happens and try to think more seriously in order not to fall into the problems which they cannot tolerate. Its relations with the other countries may be weakened because the situation in UAE will be shaken to a great extent. I think that there is a need to find a way to negotiate and solve this crisis as soon as possible, because the UAE is one of the countries on which eyes are directed, and it should be the greatest ever.
طارق
2011-9-1
There should a quick solution for this problem; yes, it is a big problem, because the economic and construction status might be collapsing in the Emirates, because the continuous rise of the interest of the mortgage finance became reasonable, and this cannot be tolerated. It will cause some companies to stop dealing with the banks, and in my opinion, this continuous rise will eliminate the situation in the Emirates. The responsible authorities should interfere to solve this problem. The rise of these mortgage loans is very dangerous especially, for the big companies, and this will be a loss bigger than expected, and the real estate sector will be finished. Since the Emirates use money in a big way, in order to construct, build and improve in the Emirates, it is possible to have big debts, and there will be no solution to this big problem.
عصام فون
2011-9-1
The process of price corrections is not uncommon in the Gulf markets, and what happened in the stock markets is still fresh in our minds. We hope that the boom in the UAE economy in general, and in Dubai in particular, will not leave behind a bubble that will burst at any moment, leaving behind tremendous losses that could require a long time and immense efforts in order to remedy the situation and overcome the exorbitant costs that this will incur, if that event actually takes place and causes the real estate sector to collapse. We also hope that the political and economic decision-makers will take the course of action characterized by the saying that prevention is better than the cure. They should take lessons from others, so that they would not become lessons like others. The real estate financing bank in the UAE raised the interest levels on real estate loans for fear of repercussions that could pose a threat to this sector and lead to major losses as a result of the increase in demands for real estate loans, which has led to an increase in the supply of property in the country without a corresponding demand.
حمودي شعبان
2011-9-1
These days, we are seeing real estate companies and real estate development companies in the UAE offering very affordable payment plans for purchasing property. Of course, this is being done in close collaboration with banks and real estate financing companies, as they are offering them at the market prices, which are most of the time different from their real value as a location or as a service. This can really be observed in the emirates, where the real estate investments are experiencing growth, such as Ajman and Um Al Quwain and Ras Al Khaimah and others, where huge projects are being announced, and beautiful pictures of these projects are advertised, which the advertising companies craftily design so that these advertised projects look like they are little pieces of heaven. This does not take into consideration the condition of the infrastructure that is currently in place in these emirates, such as electricity, water and the sewage system, and whether they will be able to accommodate these massive projects or not, since, according to what we know and what can be seen, there are no emirates that have these capabilities other than Dubai and Abu Dhabi, and to a lesser extent, Sharjah. We could say that these are very realistic.
مجدي عبد السميع
2011-8-31
There are factors that appeared recently, which led to the increase in the interest rate on mortgage financing in many countries of the world, because of the financial crisis that swept through the world and affected the sector of real estate negatively in most countries. This includes the area of the Arab Gulf, especially the UAE, which increased the interest rate for the real estate sector. This led to the stumbling of this vital sector which has great financial importance in a way that supports the state’s economy and contributes to achieving its economic and financial stability. This sector also leads to reducing the inflation rates in the country, which secures economic stability for the country. The problem that banks are facing in the UAE currently lies in the increase in the dangers to mortgage financing, especially after the financial crisis in the world that exposed many countries to grave financial losses. However, when it comes to the UAE, the increase in the interest rates approved by banks in the real estate sector has great economic implications that may pose a great threat to the real estate companies in the countries that will suffer great losses due to the accumulation of interest expenses and the change in the prices of interest rates. Therefore, the problems this sector is suffering from should be dealt with by issuing laws and regulations to increase demand regarding mortgage financing on the part of investors.
Fatooma
2011-8-30
The increase of the interest rate in the real estate sector in the UAE is among the most dangerous things that have threatened this important sector. In fact, many economists have made real and objective analyses because the interest rate on the mortgage has been in a continuous increase. This can threaten many companies that will witness a big failure if things remain as they are in the current time. This year, the increase of the interest rate in the Emirates has reached 11%, after being about 6% and 7% two years ago. This will have many repercussions, especially since the bank interest rate has witnessed a great increase and a significant difference from 2009 up to now. In fact, many real estate companies have suffered from many negative repercussions, due to the increase of these rates and to the real estate companies’ losses. Thus, this important sector has been affected by the global economic crisis that has affected many sectors, such as the real estate sector and the investment sector in the State of the Emirates. Thus, I’m in favor of the economic analysts’ findings in the real estate sector. In fact, the latter will witness a significant decline if it remains as it is.
شريف الرحو
2011-8-30
I think that the reason behind the high interest rates on real estate financing in the UAE is the end of the boom of the real estate sector, as seen by economic analysts. The increase in revenue is not accepted by many companies’ owners, investors, banks and shareholders in the real estate sector. Therefore, it is worthwhile to be working on providing help for the development and advancement of the country, and to continue working correctly and legitimately, rather than exploiting the situation and increasing interest rates on real estate finance in the UAE. Economists consider this the end of the boom in this sector, and they think that this act will harm all aspects and lead to the end of activity in the real estate sector in the UAE. Therefore, this act has to be reviewed again, and there has to be a balance, free from any interest that may be unacceptable.
homda
2011-8-26
Certainly, the reason behind the increase in the interest rate of mortgages is a leap forward in the real estate sector in the UAE, which is the correct analysis as conducted by economists. The UAE is a country known to be based on investments and real estate, and there have to be disagreements regarding the real estate sector. This disagreement was clear, however, after conditions improved, and the UAE started to experience a kind of economic improvement, because real estate there started to go back to what it used to be before. Thank God, the mortgage loans and their interest rates from the banks are now under control. Conditions in the UAE are better than before, and the interest rates in mortgage loans have now improved, which is what we called for. We call on the UAE to always be in the lead and for everything there to go back to the way it was and even better. We call on the government of the UAE to maintain its honorable opinion, and they are capable of making the UAE one of the first ranking Arab and Gulf countries of all, which is what we hope for every time, thanks to their cooperation and solidarity.
عوده محسن
2011-8-24
The global economic crisis has had a significant impact on all the sectors in many countries, and caused many losses in the investments and real estate sector, as well as in other critical sectors. However, I believe that some countries have been able to overcome this crisis by adopting certain economic and financial policies, and they have not been affected so much. Among these countries is the United Arab Emirates, which was able to properly deal with this crisis. At the start of the current year, 2011, we can see that the Emirate of Dubai has seen a remarkable improvement in the real estate sector, which has been revitalized and is starting to prosper once again, and this is a positive step which we applaud. We also commend those in charge of the real estate sector in Dubai. Last year, the real estate sector in Dubai saw a remarkable setback, which had a tremendous impact on prices and on supply and demand.
rabi
2011-8-22
The problem of high interest rates for real estate financing in the UAE is among the major problems witnessed by the real estate sector, which will face many problems in the future if interest rates continue to rise in the country. The interest rates that the banks charge the real estate investors at the moment have reached more than about 11%. If we compare this rate with the ones charged by banks about 2 years ago, it was almost 5%. Therefore, we note that the present interest rate is high and cost a great deal of money for the investors in real estate. In my opinion, I don’t want the interest rates in the real estate sector to continue to rise in this way. It will significantly affect the prosperity of the real estate sector in the UAE. I personally think that the global economic crisis and the fact that many foreign investors have come into the country to work in the real estate sector were the main reasons for the increase of interest rates in the United Arab Emirates.
خليل
2011-8-19
I believe that the reason behind the increase in the interest rate of mortgage financing is the end of the real estate prime. Some economists analyzed this phenomenon and concluded that the increase in the interest rate is the main and first reason behind the end of the real estate prime in the UAE. Therefore, specialists in this field have to do what is necessary in order for there to be a correct way that leads to the sustainability in real estate work in the UAE. The UAE has always been in a state of progress, building and expansion in all fields, including investments, foreign corporations and banks, and increasing movement in the field of tourism in the country. All this had a great and effective role in what happened in the UAE. As such, it is very necessary for there to specialists in the fields of finance and real estate, to ensure the accuracy of the work, so that there won’t be damage or deterioration regarding the real estate sector in the UAE.
زينب العسكري
2011-8-18
The United Arab Emirates is a pearl in the center of the Arab Gulf, which benefits a lot from the huge developments offered by the UAE in all life fields. This country aims to provide the best services for its citizens, the region and the entire world. Economy analysts expect that the price of real estate will settle at its lowest rate in the future, in spite of the significant real estate price increase in some wealthy areas in Dubai. Yet, they have returned to their normal rates, those before the crisis, and they are becoming real offers in accordance with the speculation occurring in the market, because of buying and selling. In fact, it is noteworthy that some buyers are looking for luxurious real estate at present, because they feel that prices have reached their lowest rates and that this is the suitable time for purchasing.
ikraam
2011-8-18
The rise in interest rates on the financing of real estate for the projects that investors want to implement in the UAE will significantly hamper development in the economic sector. Investors will be reluctant to seek loans from banks in order to build residential units or offices, because people cannot buy them due to their high prices, and that is because of the rise in the interest rates set by banks on the loans granted to investors to finance real estate in the country. We believe that most investors are waiting to see how the market will be in the next phase before they resume working and purchasing. Many of them think that the development of the market was not at the level required at this stage, which will enable them to achieve the profits that they are seeking. However, investors and sellers today need to change the way they think, in order to achieve the greatest possible number of sales, which will be a key factor for opening the doors for buying, selling and the movement of the market that will bring liquidity and make this vital sector recover, let alone the prosperity and development that the country will witness, thanks to the construction and building of service and key projects.
نظير الحوت
2011-8-18
There must be solutions for the problems of the real estate sector in the UAE. Indeed, we, as Arabs, are proud of it, as a very important Arab Gulf State.
جوكر
2011-8-18
The rise in the interest rates of mortgages is the only solution to the problem of the real estate sector. The rise in interest rates became greater than the rate of inflation, and the interest rate on loans began to rise steadily and gradually. We want investors to be more patient so as to see a change in interest rates and real estate financing. We all know that the United Arab Emirates is one of the countries that are interested in construction and real estate matters, and that it is one of the first Gulf Arab States that reflect architectural and civil development.
خيري مرزوق
2011-8-18
It is important to find a solution for the real estate sector in the Emirates. In fact, economists have concluded that the increase of the interest rate is the most suitable solution. I think that the State of the UAE will further develop the real estate sector and make it much better than before.
مفيد طعمه
2011-8-12
The increase in the interest on loans provided by banks to finance real estate in the Emirates will have a negative role in the decline of investment in real estate. It is perhaps due to the significant increase in interest, because many Arab and foreign investors have started to invest in real estate in the UAE. However, I think that many of these companies will stop because the increase in the interest rate will result in reducing the benefits for these companies. If the interest were reasonable, things would be better and real estate development would continue in the UAE. We don’t want other countries to give better opportunities to these companies to invest there. As a result, investors will leave because interest rates are high, and the problem is that these investments are still increasing.
hanady
2011-8-9
There is a noticeable increase in the prices of real estate in Dubai, after the concerned entities prepared plans and studies which persuaded the people that things have improved. There is an expectation that the prices of this vital sector will increase by 2011. This sector has recovered and prices have increased up to 20% in some parts of Dubai during the first half of the current year.