Identifier
Created
Classification
Origin
08DOHA443
2008-06-15 09:03:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Doha
Cable title:  

TIGHTENING MORTGAGE LENDING RULES TO SHORE UP THE

Tags:  ECON EFIN QA 
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VZCZCXRO9695
PP RUEHDE RUEHDIR
DE RUEHDO #0443 1670903
ZNR UUUUU ZZH
P 150903Z JUN 08
FM AMEMBASSY DOHA
TO RUEHC/SECSTATE WASHDC PRIORITY 7992
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
UNCLAS DOHA 000443 

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN QA
SUBJECT: TIGHTENING MORTGAGE LENDING RULES TO SHORE UP THE
BANKING SYSTEM AND CURB INFLATION

UNCLAS DOHA 000443

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN QA
SUBJECT: TIGHTENING MORTGAGE LENDING RULES TO SHORE UP THE
BANKING SYSTEM AND CURB INFLATION


1. (U) SUMMARY: Qatar is considering tighter rules for
residential and commercial mortgages that would minimize the
banking system's exposure to real estate market fluctuations,
more tightly regulate property prices, and reduce liquidity
in an effort to curb soaring inflation. The proposed rules
include raising down payments required from mortgage
borrowers, reducing maximum loan terms, and lowering the
maximum installment repayment to no more than the half of the
borrower's salary. End Summary.


2. (U) Driven by deep concern that any downturn in the
property market or the local economy could hit the country's
banks hard, the Qatar Central Bank (QCB) proposed in early
June a package of rules to tighten mortgage lending
practices. QCB proposes to increase a home buyer's minimum
mortgage down payment to 30 percent of the home's value (up
from the current ten percent),reduce the maximum loan term
from 30 years to 20 years, and limit monthly mortgage
installment payments to 50 percent of the buyer's salary. QCB
also seeks to mandate, for the protection of property buyers,
that licensed and registered assessors carry out all property
valuations in the country.


3. (SBU) The latest warning about the exposure of Qatar's
banking sector to real estate market fluctuations came in a
report issued by the Kuwait-based Global Investment House.
It advocated diversifying banks, lending away from mortgage
and signature loans. Another warning came from Standard &
Poor's. This rating agency reported that banks had
accumulated consumer and real estate loans that could leave
them vulnerable to market swings. Despite their strength,
Standard and Poor's credit analyst Mohamed Damak noted,
"Qatar's banks have been quickly building up untested
consumer and real estate loans over the past three years,
increasing their vulnerability to an economic downturn or a
real estate sector correction." Regional financial news
provider ArabianBusiness.com separately reported recently
that over 69 percent of property buyers in Qatar borrowed 71
percent or more of the purchase price of their home, and that
15.38 per cent of these buyers signed up for mortgages
covering 90 percent or more of the cost of the new properties.


4. (SBU) Analysts we approached for comment expect the
package of reforms to reduce the number of property buyers
falling behind on their payments. They also expect that the
reforms will lower Qatari banks, exposure to fluctuations in
the property market. Analysts also comment that the proposed
measures should be viewed not only as a necessary reform of
the housing market but also as a means to curb inflation,
which soared to 14.75% in March amidst surging rents and food
and commodity prices.


5. (SBU) Mohamad Moabi, head of research at Qatar National
Bank, told us that the package of QCB proposals would not
significantly affect the supply of money in the market or
significantly curb inflation. Moabi said the measures were
meant to ease competition between commercial banks, which
have been accumulating non-performing loans. He pointed out
that personal loans increased by 30 percent last year. Marios
Maratheftis, Standard Chartered Bank's regional head of
research, added that QCB's proposed curbs in mortgage
financing could slightly tighten the money supply, but not
enough to tame inflation in housing prices as long as real
interest rates remain negative in real terms and Qatar's
currency, the riyal, remains under pressure.


6. (U) Unable to use traditional tools to control the money
supply due to the dollar-peg of 3.64 riyals to the dollar and
Qatar's stated policy of making major monetary policy changes
only in concert with the rest of the Gulf Cooperation Council
countries, the QCB has taken a series of special steps to
reduce the money supply. Examples include raising banks,
reserve requirements, increasing sales of certificates of
deposit, and tightening lending restrictions on home
financing. Given the prevailing high inflation rates expected
in Qatar for several years running and excess liquidity in
the country's financial sector, local financial analysts
predict more such measures are likely to follow.

RATNEY