A construction site in Abu Dhabi. The new regulation allows the Central Bank to permit more property financing as needed, which analysts say is crucial for completing projects that had faced funding challenges.

When the UAE Central Bank removed a key hurdle that had long limited banks' ability to fund real estate projects, it also made sure it could stay flexible to counter the risk of the market overheating. The regulation, announced in November, abolished the ceiling on banks' exposure to real estate loans, previously set at 20% of their total deposits. A new limit has not been announced and is under discussion with the UAE Banks Federation, which means the Central Bank can effectively raise or lower the ceiling depending on how the market performs.

"The cap amendment would act as a ventilator to the current real estate sector wherein we were witnessing cash flow constraint in the market," says Dhiren Gupta, managing director of 4C Mortgage Consultancy. "The banks could now allocate larger reserves to finance real estate development for both at retail and corporate lending."

Enhanced Liquidity

As more cash enters the market, Gupta believes the move will ease stress in the property sector. "It's been predicted that the loans will grow up to 5 percent in 2019, but it is judgmentally important to maintain current loans to value levels for mortgages," he adds.

Lifting the limit also supports infrastructure development in the UAE. "Under this new regulation, project finance could see as a major beneficiary, as earlier banks would restrict their lending appetite to finance such development," says Gupta. "Also, the banks would be flexible in keeping the funding restriction set by the Central Bank. However, so far, it is not sure which loans will fall under the real estate finance."

The regulation is also expected to lift the confidence of investors and end users. "The amendment indicates that the UAE Government is striving to maintain strong economic growth for the people of this country," Gupta adds. "With this new regulation bank appetite to finance real estate development would growth, hence, the market could witness added mortgage transactions in the coming months."

More Active Lending

Amer Khan, head of retail products and segments at Standard Chartered UAE, says the change will help banks participate more actively in real estate, particularly in key growth markets such as Dubai and Abu Dhabi. "It allows banks to prioritise the use of its deposits to fund real estate loans both to the property developers and customer mortgages," says Khan. "Increased access to bank funding will ensure property developers can complete existing projects and fund new projects as well. This will give ample options for homebuyers and investors. Also, like property developers, individual homebuyers and investors would have access to more funds, which would also encourage them to purchase the property."

Under the 20% cap, a bank with total deposits of Dh100 billion could lend no more than Dh20 billion in real estate loans. "If banks already reach this limit, any loan request coming from property developers or mortgage will not be granted," explains Khan. "If there will be no cap, then the bank may opt to lend more than Dh20 billion to fund real estate loans. This means the real estate sector will have wider access to funds. We can expect completion of projects faster or continuation of projects that were halted due to lack of funds. Also, we can expect more new projects due to access to more funds."

A Push for Affordable Housing

Sunil Gomes, CEO of Gemini Property Developers, believes removing the cap will also boost the affordable segment. "It will stimulate investors, especially the middle-income investors to buy property as the confidence increases due to this new regulation," says Gomes.

Atif Rahman, director and partner of Danube Properties, says the Central Bank's move is well timed. "That will help the banks to support the property and construction sectors, which will now have access to greater liquidity. It is a very timely and significant decision that will help stimulate the real estate market in the UAE."