UAE Central Bank seeks feedback on proposed property lending caps

The measures aim to prevent lenders becoming overexposed to the real estate sector

JLT Lake.

(Photo: Reem Mohammed/The National)

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The Central Bank of the UAE is inviting banks to provide feedback on a new regulatory framework to limit their exposure to the real estate sector.

Banks must complete their review of the regulator's proposed measures – which aim to cap lending to real estate companies – by October 31, the Central Bank said on Thursday. Any comments must be submitted to the UAE Banks Federation.

The proposals ensure banks with real estate exposure above a certain threshold "will be subject to supplemental regulatory requirements", the regulator said.

"In addition, through the application of a backstop, the proposed measures avoid excessive real estate exposure and encourage banks to maintain diversified assets."

Lending to the residential real estate sector stood at Dh243.5 billion in 2018, according to the UAE Banks Federation’s recently published annual report. Total domestic credit extended by banks stood at little more than Dh1.5 trillion.

The UAE property market slowed after a drop in oil prices that began in 2014, as well as concerns about an oversupply of inventory. However, experts have forecast a recovery on the back of government reforms to encourage investment. These include a new immigration regime offering long-term visas for investors, Dubai Expo 2020, Abu Dhabi’s Dh50 billion Ghadan 21 stimulus and changes to the capital’s freehold property law.

The Dubai government also recently set up a new real estate committee to attain a better supply balance in the emirate through greater collaboration between government-related entities and private sector companies.

The Central Bank said its proposed framework will be backed by risk-based supervision to assure the implementation of the measures and risk management standards.