Dubai International Financial Centre (DIFC) and Absalon Project, a joint venture between affiliates of VP Securities and Soros Fund Management, have launched a feasibility study for a mortgage system in the UAE, based on the principles of the Danish Mortgage Model.
The proposed model involves private residential mortgages being funded by the issuance of standardised bonds and creating a large and liquid mortgage bond market, DIFC Authority Chief Economist and Head of External Relations Nasser Saidi was quoted as saying by the UAE’s official news agency Wam. He said that once legislative gaps are filled, the system could be implemented within 18 months.
“Sustained recovery of the real estate sector is essential for the revival of growth in the region. The underlying economic fundamentals and demographics are positive. However, reform and development of housing finance are necessary for the medium-to-long term recovery of the real estate sector,” he said.
“We have proposed to set-up of a mortgage securitisation mechanism to create a market similar to the Danish Mortgage Market. No investor has ever had a loss due to mortgage default, despite several financial crises,” he added.
Saidi also proposed to establish an Emirates Mortgage Guarantee Corporation (EMGC) to support the recovery of the region’s mortgage markets.
The proposed model would reduce the risk and exposure of real estate developers and lending institutions, provide additional funding to the housing finance market and give strong impetus to the financial markets as an engine of economic growth.
The idea is said to have been well received by commercial and mortgage banks, construction companies and developers, regulators, investors and stock exchanges.
A unique feature of the Model is the interchangeable nature of the mortgage and the bond. It allows a homeowner to retire their mortgage not only by paying it off directly, but also by buying an equivalent face amount of bonds at market price. Essentially, the mortgage insurance scheme would spread risk and stimulate market liquidity.
