Abu Dhabi’s Off-Plan Mortgage: Game Changer or Just More Financing?

SPEAKER_1 (0:00)

It's the Morning Drive. Abu Dhabi's property market is getting a new financing option for off-plan buyers. It's a first-of-its-kind mortgage framework. And what happens is, buyers can now get financing earlier in the whole kind of property journey. How much of a game changer is that? Because the Central Bank has long allowed financing of up to 50% for off-plan properties, while Abu Dhabi developers traditionally offered payment plans below that threshold. So really, what actually changes for buyers and the wider market? Ben Crompton is Managing Partner at Crompton Partners Estate Agents, based in the capital. Ben, good to have you back on.

Ben Crompton (0:45)

Thank you, thanks for having me.

SPEAKER_1 (0:47)

You're very welcome. Let's start with the sort of baseline reality on the ground in Abu Dhabi. So historically, if somebody wanted to buy an off-plan asset, they relied entirely on developer led payment plans right up until handover. So then they kind of scramble for a completion mortgage. So how painful was that transition for buyers?

Ben Crompton (1:12)

Yeah, I mean, so traditionally, probably up until last year, we would have payment plans from developers of let's say 40, 60, 50, 50

Yes, now the Central Bank has allowed mortgages all for quite a long time on the second 50% of your payments. So we net, so in Abu Dhabi, I think it's a bit different to Dubai. I think EMAR for a long time had these 80, 20 payment plans.

So in Abu Dhabi, we never really had, even the opportunity to finance off plan purchase. And as you say, you'd get to the end, you get to handover and then, you'd get the BCC from the developer. They'd say your property is ready. You'd need to pass the other 60% and then you'd go out to the banks and get that mortgage, that secondary market standard mortgage that we all get. And it would obviously be quite a scramble because you've got 1000 units handing over, the banks are scrambling for the business. So yeah, it would be a bit of pressure on buyers at that point.

SPEAKER_1 (2:09)

So what exactly is new then about Abu Dhabi's off plan mortgage framework? Why is it being highlighted or why is it highlighted now?

Ben Crompton (2:20)

I mean, it's an interesting question why it's been highlighted now. It seems like this is either the first one that's ever been done or the first one that's been done within the Adreq framework. The reporting isn't quite clear on that. And if it's the first one that's ever been done, that kind of makes sense because as I said, we never had these payment plans that went above the 50% mark. The Central Bank says you can't lend that first 50%. Obviously, in a secondary market, you need to put down 20% equity and you can borrow the next 80%.

If it's under 5 million, it's your first property. In off plan, you had to put down the first 50, then you could borrow the installments after that. We never had those kinds of payments plans before.

Because the property market has been booming at LW, we've had these more aggressive payment plans recently. So it might be the case that this is just the first time this has ever happened, where someone's paid 50 percent as part of their payment plan and is now looking for the second 50 percent. It also might be the fact that Adrec, our version of the regulator, our version of the DLD, now seems to put a framework in place here to help this. It might be the case that banks before would probably struggle to take security over and off plan property. Obviously, the ability for them to take security over an unbuilt property is... They've been doing it for years. It's very, very comfortable. The banks are comfortable with it. But taking security over an off plan property, that might be the piece that's been put in place now. It isn't quite clear from the reporting. But obviously, banks aren't gonna want to lend on an off plan property unless they're very sure they can take security over it.

SPEAKER_1 (3:53)

Sure, banks like that. Tangibility, don't they? You can understand that. So this is an Adrec-backed, a regulator-backed framework. It was kicked off by Alda at ADCB. So buyers who've hit the 50% payment milestone can formally register a bank's interest on the initial real estate register and have the bank fund the remaining construction installments. So does that 50% hurdle make this a tool for elite or well-capitalized, I suppose, buyers? Or does it really genuinely open up liquidity?

Ben Crompton (4:31)

It's not going to open up a lot of liquidity because you've got to put down that 50% cash anyway. So it's not going to release a lot of cash for you. What it does do is it allows a buyer who's looking at one of those more aggressive payment plans, which have been happening in the market, let's say a 70-30, and they can understand that, okay, I actually only need 50% cash over the life of this. Let's say it's a three-year build, I only need 50% cash, and I can finance that last 20%.