The injection of new funds in Islamic mortgage lender Tamweel following the increase in shareholding by Dubai Islamic Bank (DIB) is not likely to change the conservative lending attitudes currently adopted by local financial institutions, industry players feel. This would, in effect, mean that a substantial revival in lending is unlikely to happen soon in the Dubai property market.
"Dubai Islamic Bank already has elevated levels of exposure to real estate and mortgage lending, which it is trying to reduce in order to diversify its loan book. While the deal will see Tamweel continuing to operate, lending is not expected to be aggressive and Tamweel's lending ability is small in comparison to Dubai's total property market," observes Mohammad Junaid Bray, research analyst at Abu Dhabi Commercial Bank (ADCB).
While industry analysts expect Tamweel to start lending from the first quarter of next year, the Islamic mortgage company is anticipated to adopt stringent criteria while profiling customers. "The loan-to-value (LTV) ratio will most likely not be as high as before, rates will stay on the higher side and customers will need to have a solid profile and income," says Dean Biddulph, general manager at Independent Finance, a mortgage consultancy.
Tamweel had accumulated non-performing loans (NPLs) and heightened its real estate exposure during the height of the property boom in Dubai. "In 2007 and 2008, the regulations and procedures to get a mortgage were almost effortless. The issue is not to make the procedure tedious. The intent and will should, instead, be to provide home loans again in a direct way, as in mature markets," comments Hesham Al Far, CEO of Coldwell Banker.
"Banks have now adopted stricter lending criteria such as requiring higher deposits and lending to properties by better-known developers. Tamweel is expected to adopt similar stringent lending criteria when it resumes lending," suggests ADCB's Junaid.
Banking analysts do not foresee Tamweel resorting to mass foreclosures, notwithstanding the number of property defaulters in its loan books. "Many of Tamweel-financed properties that were financed in the peak periods are currently on negative equity. Tamweel will, however, be more flexible to accommodate their clients to not default," reckons Biddulph. Concurring with him, Junaid adds, "Tamweel will avoid ending up with a significant inventory of foreclosed properties, which will increase working capital and inhibit cash flow."
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DIB has increased its shareholding in Tamweel to 57.33 per centTamweel is expected to get an injection of fresh funds soonView the original article here
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