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Expatriates in the United Arab Emirates (UAE) are being held back from buying property due to caps on the amount of money they are allowed to borrow.
The UAE central bank has taken the unexpected move of restricting lending to expats to 50 per cent of the value of any property they wish to purchase in the country, reports the Telegraph.
Previously there had been no limit, meaning that foreigners could obtain 100 per cent mortgages if they wanted to.
Since the UAE is a popular expat destination, foreigners make up the majority of the eight million-strong population.
If expats were to default on their home loans, banks could be left in a vulnerable situation having opened themselves up to high levels of risk.
In contrast, Emiratis are restricted to a 70 per cent loan-to-value ratio and have long been calling for expats to be curbed in the same way.
They also fear that such high levels of foreign investment in the property market could lead to the creation of another asset bubble.
Simon Conn, an overseas property specialist, said: "If they are only offering 70 per cent to residents then offering lower to non-residents makes sense, as there is more risk to the lender, especially if the non-resident defaults and the banks have to chase any outstanding debts."
Many of the large scale building projects that had been planned prior to the global economic crisis have been put on hold.
They are looking to be brought back to the fore and come to fruition, which some fear could lead to a property boom and then bust.
As a large number of foreigners that purchase property in the UAE are cash buyers with no need for mortgages it is unlikely that the new rules will prevent them from buying houses.
Mark Stott, chief executive officer at Select Property, said: "If these changes do happen, then we'd expect to see an increase in the rental market with more people choosing to rent a property rather than buy.
"With rental yields standing at between eight to ten per cent, this presents property investors with a sensible option."
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