No Access To Cheaper Mortgages

Access to cheaper mortgages will not happen any time soon for prospective property buyers in the UAE with a key lending benchmark — the Eibor (Emirates inter bank offered rate) — remaining on the higher side. In fact, a combination of factors are in play working to keep it that way. First off, there is the anaemic growth in deposits in the banking sector, which in turn is forcing banks to rely on the costlier inter-bank channels for their funding requirements. This being the case, the Eibor has steadfastly remained in the two per cent plus range, and by extension ensuring there is no easing up on offered mortgages (where they are available in a still tight lending marketplace). Obviously, this will continue to act as a drag on demand for new homes, though pricing levels have now settled around the 2006 levels. Even then, the current pricing "only erases the unfounded exaggerations of the market peak, but does not reduce prices to levels where value is evident once again to buyers who will spur activity," said a newly released report by Daman Investments.

Apart from the demand consideration, there could be other reasons why new buyers may fight shy of investing now. "The currently developed supply of real estate was built by master-developers and hence the quality of which will be far superior to the supply coming on-stream," the report — titled "The UAE Economy at the Crossroad" — added. "The bulk of forthcoming supply is being built by single asset developers who are having to downsize from their original plans. Hence, active government monitoring will be required." According to Daman Investments' projections, the local real estate sector will remain in a "quagmire" through this year and up to the end of 2011. But a definite plus that can be taken from the state of the housing market — in terms of end-user prices and rents — is it lessens inflationary pressures. "As the major component of the Consumer Price Index remains housing, the outlook therefore remains benign," Daman Investments has said.

"Abu Dhabi's CPI remains at a significantly higher level than that of Dubai at present - however this will change as significant real estate supply is slated to come on-stream this year." The report reckoned on completion of 26,000 residential units by the end of the year and another 25,000 units in 2011. "Oversupply is still forecaster, with prices not recovering before 2011 at the earliest, hence, we expect further downward pressure on yields," the report said. "In essence, the real estate sector is in a trans-formative phase as it shifts from a period of asset and value creation to that of asset management and value enhancement." While the residential space wrestles with its own problems, those in the commercial real estate market are more immediate. "An additional 12 million square feet of office space is scheduled to be released over 2011-12," said the Daman report. "City-wide vacancy rates stand at around 38 per cent and are expected to exceed 50 per cent over the next few years.