Housing data reveals lending conundrum

Banks are reporting an increased appetite in lending to people buying houses in contradiction of Central Bank data. Pawan Singh / The National

The amount of money lent to buy or refinance property in the UAE has flatlined, according to the latest Central Bank data, contradicting increasing signs the country's property market is picking up.

Lending to the property sector as a whole reached Dh240.6 billion (US$65.5bn) during the second quarter, the same amount as during the same period of last year, the data showed. On a quarterly basis, property loans rose 0.3 per cent from Dh239.9bn in the first quarter.

The three months to the end of June marked at least the fourth quarter in a row of stagnant property lending - a big change compared with the boom years when double-digit rises were recorded.

The Central Bank data contrasts sharply with other data from Dubai - the country's biggest property market - which show sales have been increasing over the same period.

In July, the property consultancy CBRE reported total property transactions during the quarter increased to Dh4bn compared with Dh3.1bn in the previous quarter.

Banks, too, are reporting an increased appetite in lending to people buying houses and others investing in the property market.

Tamweel, an Islamic mortgage lender, yesterday said the number of home-finance applications increased 26 per cent in the first half of the year compared with the same period last year. Looking ahead, Tamweel estimates UAE home finance transactions will be 30 per cent higher this year than last, as the country's home finance market surpasses Dh8bn.

"The increase in home finance transactions and the availability of home finance from different providers have contributed to today's healthy market," said Varun Sood, the acting chief executive of Tamweel. "It is important to remember that home finance in the UAE is still only a decade old, meaning enormous untapped potential still exists for the industry."

In a further sign of confidence in the market, Tamweel added that between January last year and June this year, the value of properties in its portfolio increased by between 10 and 15 per cent, with the greatest rises in mature and completed developments in Dubai and Abu Dhabi.

Banking analysts say the Central Bank data may be skewed by low levels of activity within the commercial sector. Many banks remain wary of fresh lending to commercial developments because of an oversupply of offices and other commercial buildings.

"Commercial deleveraging is still happening," said Jaap Meijer, the director of equity research, banking and insurance at Arqaam Capital. "But it's becoming easier to get a residential loan and loan to value ratios are improving, particularly if you're an end user."

Banks are also still contending with non-performing loans, many of which have links to the downturn in the property market. With banks preoccupied with building provisions against the risk of further bad loans, a reluctance to lend is not surprising.

"Due to the longer average maturity of property loans relative to other types of lending, banks in the UAE may have a lower allocation to property lending than one may find in countries with a longer history of lending to the property sector," said Sanyalaksna Manibhandu, a senior analyst at National Bank of Abu Dhabi.

Property experts also say the lending figures may indicate a new influx of overseas investors to the Dubai property market.

"The banks we have been speaking to have reported an increase in their regular property business so these [Central Bank] figures come as a bit of a surprise to us," said Matthew Green, the head of research and consultancy UAE for CBRE.

"The proportion of cash buyers varies between projects but can be as high as 70 per cent. With the population of the UAE not increasing noticeably since the global financial crisis, it may well be that we are seeing more cash buyers coming into the market from other countries."

Joseph Morris, Knight Frank's director of investment in the region, said the effects of the Arab Spring elsewhere were boosting the UAE market. "We are seeing a growing number of cash purchasers in the Dubai property market.

"It's current status as a safe haven in the midst of the Arab Spring is attracting even more buyers from neighbouring countries."