Dubai’s New Mortgage Law

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Dubai’s real estate sector has always catered to the region’s need for versatile financial services to meet increasing demands. People from around the globe have been attracted to Dubai’s free and friendly economy, world-class infrastructure and unique legal and commercial framework which helps make it easy to carry out business and invest in real estate. This is invariably causing the demand for property to rise in the city.

In April 2018, the Dubai Land Department (DLD) introduced a new Mortgage and Finance Law aimed at boosting the property investments environment and streamlining financial mechanisms to make it transparent, safe and easier for all.

What are the objectives of the new Mortgage Law?

The main objectives of the new law are as follows:

  • Attract foreign investors and public joint stock companies listed on NASDAQ
  • Encourage alternate financing methods and welcome REITs
  • Integrate the Real Estate market with capital markets
  • Catalyze opportunities for partnerships and investments that finance the real estate sector
  • Improve financial liquidity
  • Accommodate investors with small/medium sized portfolios
  • Strengthen partnerships between the public and private sectors
  • Overall, boost the Real Estate economy and GDP

The government is envisioning greater and more strategic diversification of investments and alternative funding avenues for the city’s real estate sector by extending the Smart Dubai 2021 initiative into the financial sphere through the new mortgage law. This, in turn, will help stimulate economic growth.

Why is the new Mortgage Law beneficial?

The existing landscape of real estate funding makes it difficult for non-residents to buy property in the UAE because of reduced bank financing and complicated procedures.

Non-residents looking to buy property in the UAE want to get higher proportions of financing, but banks currently offer a loan-to-value ratio of only 60 to 65 percent on a ready property for non-resident investors. They are apprehensive to lend more due to the high levels of risk involved.

The new mortgage law is expected to improve financial liquidity, making it easy for small and mid-cap entities to make property investments, as well as helping homebuyers realize the dream of owning their dream-homes

The new law also intends to make it easier for specialized funds to come into the Dubai real estate market. Formation of ‘Real Estate Investment Trusts’ (REITs) – which currently accounts for 5% of Dubai’s listed real estate – will allow the integration of real estate with capital markets.

REITs and alternative financing avenues will support the expansion of funding channels available to developers, while also allowing higher exposure to foreign investment funds to Dubai’s real estate market and providing investors with liquid, diversified and smaller ticket size investment instruments.

The new law will help catalyze opportunities for partnerships and investments that finance the real estate sector, allowing local companies to exchange experiences with foreign ones. This will help extensively improve products and services and will modernize investment streams to strengthen the sustainability of investments in the market. Property developers can deliver projects faster, expand further, attract better foreign investment and provide investors with diversified, small ticket investment instruments.

In conclusion, regulation has always brought in better accountability in Dubai, and with this law, the real estate sector will only benefit positively. Since the mortgage industry is still in a formative stage, this law is a big leap forward in protecting the interests of buyers, providing greater regulation and better transparency.

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