Thursday, 16 October 2008

Dubai is hit by liquidity and lending troubles

Dubai is hit by liquidity and lending troubles

Confusion and even panic is beginning to be detected in Dubai’s property market as concerns about liquidity, lack of lending and credit deterioration spread.

‘In our view, there is legitimate concern the Dubai market is enduring a liquidity squeeze and witnessing macro-economic and credit deterioration in most of the countries from where its expat buyers hail,’ says a real estate report from Citi Investment Research.

‘Liquidity among Gulf banks has dried up, bringing into focus the bias to real estate and construction of local bank loan portfolios,’ the report adds.

The UAE central bank recently created a pool of Dh50 billion to provide much-needed liquidity to the desperately dry banks.

However, the banks are reluctant to disperse credit until they see evidence of sovereign wealth being reinvested in to the local economy, the report points out.

The current liquidity squeeze is due in part to domestic banks having a larger loan book than deposit base and because foreign banks are keen to hang onto their capital. The squeeze is restricting mortgage and lending facilities that were once easy to obtain.

First time buyers could be forced out of the UAE property market. ‘It is going to affect people that are trying to get a foot on the ladder,’ said Jean Luc Desbois, managing director of Dubai-based mortgage consultancy firm Home Matters.


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