It can never be said by prospective property buyers that while they are willing, they just can't find the mortgage providers to help them do so. Mortgage lending has perked up quite nicely in recent weeks
and the providers are engaging in one-upmanship by promising the lowest rates available in the market.
Throw into the mix a steady trickle of completed properties built to a certain quality, and the market may well have discovered an ingredient to stage a phased recovery.
Sundar Parthasarathy, executive vice-president and head of consumer assets at the Abu Dhabi Commercial Bank (ADCB), offers a primer on the likely trends in the mortgage market in the medium-term.
GULF NEWS: Of late, there are a spate of mortgage offers at rates lower than what they were in the recent past. Do you see a more competitive rate environment shaping up?
Sundar Parthasarathy: Healthy competition is always good. Yes, there are quite a number of banks offering attractive rates, but most are based on floating rates.
The rates starting from 4.99 or 5.25 per cent are available not beyond two years or a maximum of five years depending on the lending bank's choice. Global banks are in a better position to offer lower rates. I guess there could be two factors in play strategy and the lower cost of funds.
In other cases, a few banks are getting active on the mortgage side through a small portfolio and are trying to build up by appealing to customers through "penetration pricing". At the end of the day, mortgage offers from over dozen banks are a vigorous sign for the market in general.
Are there enough property buyers interested in what is being offered?
If you look from a customer's point of view, it is a wonderful situation to be in with the stabilisation of property prices and attractive mortgage rates.
We are seeing a trend of people moving from other emirates and considering living in a vibrant community with easy access to transportation, schools and medical centres. We are also seeing a trend of customers taking a composite view whilst buying property and substituting rentals. My personal view, after looking at the quality of properties and infrastructure, is that there is lot of intrinsic value given the current situation.
How about offering mortgages on properties that are nearing completion?
As a lender we do have a policy of considering this as well. But that's not necessarily a preference shared by the consumer and we are seeing transactions largely skewed towards completed properties with enough weight given to community living as well.
But is the market seeing enough completed properties being available in communities?
Candidly speaking, customers are spoilt for choice and a good number of completed properties are available for attractive prices vis-a-vis what was seen a couple of years ago.
There is a trend of consolidation people who had bought properties in the past for investment purposes are placing them in the market. This behavioural change of managing their credit exposure better gives immense comfort to the banks.
Have the demographics of the buyer profile changed from what they were in the past?
The demographics have been the same as earlier. Perhaps, the positive change being witnessed today is of buyers going in with their families to scout for a property closest to their preferences. It was never the case earlier.
People are negotiating hard with owners and seeking a profound understanding of bank loans' terms and conditions.
Is there a concern among potential buyers about service charges which are still high? Is that a factor in their decision?
Due to market conditions in the beginning, there was a bit of reluctance to accept the service charges and this emanated due to lack of transparency on fees management.
But today, the owners can refer the matter to the Real Estate Regulatory Agency (Rera) and seek guidelines for an healthy intervention. We can also have a fair indication of service charges which range for an apartment from Dh16 to Dh30 per square foot. For villas it is quite less and range from Dh10,000 to Dh15,000 per annum.
The payments in the earlier scenario were a lump sum but now the developers do consider options of quarterly payments. In addition, there is also an active development of owners associations, wherein residing owners can take responsibility of maintaining their community and the costs as well.
What about the risk profile of the mortgage taker?
Typically, in most mature markets, mortgage delinquency is almost nil on those properties where the buyer is staying with his family and primarily emanating from the sentiments attached.
Though I don't have a crystal ball, I can fairly comment that for most of the banks, all indicators in relation to the mortgage book should look positive.
What about the loan tenors on mortgage lending?
Most of them are in the range of 25 to 30 years primarily due to higher loan amounts and have a strong collateral as security. At the same time, it is imperative to give comfort to customers on repayments.
But as witnessed in matured markets, the average life of a mortgage loan does not go beyond eight years. With families staying in the property, the first intent is to pre-pay from savings, bonuses, etc.
There's this perception that new mortgage clients are getting better rates than the existing ones. How would you address that?
That's a dynamic most of the banks are facing. It is like any offer you get at the shopping festival or during summer promotions and varies based on the time.
To define it in banking terminology, it is like buying mutual fund with varied net asset values (NAVs) linked to the entry timing.
We should not forget that today the composition has also changed, that is, customers' preference for completed properties, stabilised prices, intent to self occupy, comfortable loan-to-values, etc. These factors augment the comfort to lenders to make it more palatable for customers. For some banks, the lower cost of funds and strategy to acquire a mortgage book could also drive enticing rates.
What about your bank's lending rate?
We have an entry rate of 6.5 per cent fixed for one year and then it moves to retail base rate plus the margin depending on the loan-to-value and the profile of customers.
But you have a situation where global interest rates are on the upturn. How long UAE banks keep mortgage rates lower?
It's still a nascent market and one that's getting into shape. All factors — the property's value, stability of the real estate market and the rates on offer from mortgage providers — are realistic.
Where you see interest rates going up, invariably the deposit rates are also up. In India, banks are giving 9 to 10 per cent on fixed deposits. So, it only makes sense to raise their lending rates.
But these are extremely mature markets. In the UAE, the reverse is happening with deposit rates actually coming down.
So my ‘guesstimate' is that mortgage rates should not firm up sharply from current levels.
The local mortgage market could make a definitive push towards early settlements helped along by recent UAE Central Bank directives.
According to the regulatory entity, there can't be discrepancies in the fees banks charged for early settlements. Such a uniform-rate regime could shortly be coming into force on mortgage outstandings.
"With the new Central Bank regulation, early settlement charges cannot go beyond 1 per cent of the outstanding [amount] for personal and auto loans," said Sundar Parthasarathy of Abu Dhabi Commercial Bank (ADCB).
"I surmise this would be defined for mortgages as well in the near future. There has been an acceleration of early settlements from customers on loans and I guess the settlement charges could only get better for customers."
From / Gulf News