Abu Dhabi Finance + Sorouh = Profits?

Abu Dhabi Finance and the Abu Dhabi property developer Sorouh are getting together and offering mortgages with interest rates starting at 7.24 per cent per year with no application or processing fees, the companies said today. Borrowers can use the mortgages to buy apartments in any of four Sorouh developments: Sky Tower, Sun Tower, Tala Tower and Golf Gardens. The three towers are all on Reem Island, while Golf Gardens is just outside the city, right next to the Abu Dhabi Golf Club and Aldar's Al Raha Beach development.

According to a press release (after the jump), the deal gives borrowers a 1.01 per cent discount on prevailing interest rates for a year, and a 0.5 per cent discount for six months thereafter. Presumably, after that point interest rates would return to prevailing levels, which in the case of mortgages in the UAE are generally fixed to a percentage above the reference EIBOR rate.

The announcement didn't come as much of a surprise. Abu Dhabi Finance, which was set up late last year as a partnership between Mubadala, the Abu Dhabi government investment arm, Abu Dhabi Commercial Bank and three local developers (including Sorouh), said recently that it was in negotiations with developers across the emirate to offer mortgages on properties in their projects.

In making its offer, the company appears to be trying to gain more recognition in the market, although it hasn't been a crowded one since the UAE's two big mortgage lenders, Amlak and Tamweel, last year stopped lending and entered merger discussions. It also helps to bear in mind that only about 10 per cent of property purchases in Abu Dhabi are financed; the vast majority are cash. Given the downturn, though, it would be reasonable to assume more potential buyers will need a mortgage to continue to invest in property. With projects on hold and sources of capital drying up, developers also don't have much to lose by partnering with Abu Dhabi Finance and hoping business gets rolling once again.

25 May 2009 - Abu Dhabi, UAE: Abu Dhabi Finance and Sorouh Real Estate PJSC have announced an exclusive new mortgage product for customers at four of the real estate developer's projects.
For a limited period, property owners at Sky Tower, Sun Tower, Tala Tower and Golf Gardens will be able to apply for a specially-developed mortgage which includes discounted interest rates starting at 7.24 per cent, no application or processing fees.
The offer includes a reduction of 101 basis points (1.01 per cent) on the prevailing interest rates for a one-year period, with a reduction of 50 basis points (0.50 per cent) for the following six months.  The conventional mortgage has loan-to-value ratios of up to 85 per cent and is available to UAE nationals and UAE residents.  It has been developed by the two companies to offer financing support to the owners of more than 1,200 units at the four projects.
Mounir D Haidar, Chief Executive Officer at Sorouh, said:
"We are delighted to be working with Abu Dhabi Finance, Abu Dhabi's most innovative mortgage lender, on this exclusive arrangement.  
 "We created a new Customer Finance Unit in February of this year, to provide our customers with innovative options to manage the financing of payments for their future homes.
"This exciting new initiative with Abu Dhabi Finance is a result of that planning.  I am sure our customers will welcome the opportunity to take advantage of this special offer."
Philip Ward, Chief Executive Officer at Abu Dhabi Finance, said:
"This offer includes all the core elements of transparency and flexibility that come with all of Abu Dhabi Finance's mortgages - but we go even further.  The discounted interest rates and lack of fees make this a really attractive offer."
It must be noted that the two companies confirmed that they are working on similar offers for additional developments at a later date.
Mounir Haidar said:
"This initial offer reaches a large cross-section of our customer base.  We are also looking at our other developments and we would expect to roll out similar exciting new initiatives over the coming weeks and months."
ENDS