These measures could also control inflation, according to Marios Maratheftis, Standard Chartered Bank’s regional head of research (Middle East, North Africa and Pakistan).
“I am much more in favour of policies that affect the incentives of market participants rather than administrative measures,” he said when Gulf Times sought comments on a Qatar Central Bank draft on curbing mortgage lending by commercial banks in the country.
Among the proposals included in the document is a mandatory 30% deposit on mortgage transactions, up from the present 10% and a reduction of the maximum term of property loans from 30 years to 20 years in the case of retail borrowers and up to 15 years for commercial properties.
Stressing that there was nothing that the central bank could do to tighten money supply in view of fixed exchange parity with the dollar, he said only tool was administrative measures of direct controls on lending and mortgage borrowing.
“I am not sure that it will be effective as long real interest rates remain negative and currency remains under pressure,” he said, adding Standard Chartered still believed that currency reforms could be helpful.
He said the QCB’s proposed curbs in mortgage financing would not be enough to solve the problem but nevertheless it was a step in right direction since could slightly tighten money supply.
There was indeed increase in demand and has to be seen as positive but there also supply constraints and one should not underestimate the impact of surplus liquidity, Maratheftis said about Qatar’s real estate sector.
“I think we should make it expensive to buy and hold house without renting out them and we can make it expensive by increasing the cost of financing,” he said.
He said if one looked at the housing sector (in the Gulf), the purchases were not made for the purpose of living but were rather used as investments and investors wanted to sell it at higher prices.
This was a clear indication of extremely low interest rates and negative interest rates, which made it easy to buy, hold and sell at higher price, he said.
The negative real interest rate (which is adjusted for inflation) prompted investors to seek loan from banks.
The money supply growth could be tackled through direct measures such as higher cash reserve ratio and curbs on lending as well indirect measures like increasing the cost of borrowing.
Observing that central banks of the US, UK and Europe largely resorted to indirect measures, he said such measures were perhaps the most efficient way as it could to influence the behaviour of people by revising the interest rates, especially considering that Qatar has the highest inflation rates in the GCC region.
Observing that rent caps have not worked well, Maratheftis, said alternatively “the authorities could also consider taxing the vacant houses.”
