The “profit minimum” removes real estate finance dealers from benefiting from the “interest” reduction.

Two bankers said sellers who have real estate finance deals from banks that include a “minimum profit” clause will not benefit from a decline in the central bank’s key interest rate after each rate cut. decision by the US Federal Reserve, due to the policy of pegging the dirham to the dollar.

They explained to “Emirates Today” that part of the financing of real estate, especially old ones, includes this condition set by the banks, so that their profit margin does not fall below a certain limit, to which the “EIBOR” rate added (the interest rate on transactions between banks in the country in the UAE dirham).

In the case of other financing contracts that do not include this condition, the value of the share decreases with each decrease in the interest rate by the same rate, and is updated automatically by the bank , according to the agreed policy, monthly, quarterly, or semi-annually, without the need for the customer’s intervention.

This came in response to questions received by “Emirates Today” regarding the impact of the reduction in the main interest rate on the value of real estate, and how some banks failed to reduce it by the same rate, and how they were removed. monthly amount without reduction.

Real estate finance expert Ahmed Arafat said: “Real estate financing is linked to the EIBOR rate, up and down, which is determined by the main interest rate set by the Central Bank, as decided by the US Federal Reserve , because of the policy. to peg the dirham to the dollar.”

He said: “Over the course of three years when the key interest rate rose continuously, property finance yields saw a steady increase with each increase, and were finally reduced for the first time since 2020 by around 0.5% .

Arafat explained: “This is supposed to be reflected directly in the value of the property share for customers, and it happens automatically with every first update of the EIBOR price, according to the policy of each bank, with that some banks update it monthly, and others quarterly, every three months, or semi-annually.” Here, the value of the reduction appears directly on the portions of customers who do not have a condition (minimum profits) in the contracts.”

He continued: “For customers in this situation, and the majority have old contracts, the value of their installments will not decrease no matter how many times the interest rate is reduced, and even if it reaches (0%), because the bank offered the customer a profit rate of 3.5%, so no matter how EIBOR has decreased, the percentage will not be lower than this number , so the value of the monthly installment will not decrease, and this is the problem of a large number of customers.”

In the same context, a banking expert, Sheikha Al-Ali, said: “Most banks set a minimum limit for real estate financing profits that the percentage cannot be lower than, meaning that there is a fixed percentage that varies according to the policy. of each bank, to which the EIBOR rate is added, to cover operating costs and ensure a reasonable profit margin.

She continued: “Even at times when the EIBOR rate increased by around 1%, the interest on real estate financing did not fall below 3.5%, or slightly less.

Al-Ali said: “Over the past four years, the prime interest rate has seen a continuous increase, which has led to an increase in the value of most real estate financing shares, but with a return to reduction, it is expected that the value of which the share falls will be at the same rate as (EIBOR), and will appear in the customer’s statement of account.” With the first update of (EIBOR) to the bank’s systems, depending on what each bank decides.”

In response to a question about the need for the customer to review the bank, Al-Ali said: “There is no need for customers to review the banks they deal with, since the reduction happens automatically as long as there is no condition. contract (minimum profits) in which the customer cannot benefit from the interest reduction The president, regardless of the amount that is less than the percentage specified in the contract.

• There is no need for customers to visit the banks, as the monthly reduction occurs automatically as long as there is no “minimum profit” condition in the contract.