The banking sector in the UAE is set to witness an increase in positive sentiment, with new regulations being introduced across the industry. The UAE Central Bank has recently announced removing the 20% cap on real estate loans, in line with the UAE government’s vision in removing certain road-blocks in order to stimulate overall economic growth.
In the coming few months, it will be pertinent to evaluate the impact these regulations have on the banking sector across the UAE, as certain aspects will surface during the implementation phase. It is therefore vital to assess the following notions:
-Why the UAE’s Central Bank has made the announcement
-How it affects banks’ appetite on real estate financing
-The impact on developers and real estate investors
Removing the 20% cap on loans in the real estate sector will encourage banks to lend seamlessly and to instill confidence amongst stakeholders, in order to liquidate some aspects of the real estate market. This could lead to eliminating challenges in the current sluggish real estate market, and will ultimately be the first step in the right direction to increase economic growth.
After an in-depth analysis of the current banking structure and their real estate appetite, we have noticed that banks have found it challenging to finance customers due to the Central Bank lending limit. The removal of the cap will enable lenders to deploy capital to new and existing customers. However, the regulation does not change the bank’s credit approval procedures as lenders will still conduct thorough due diligence and approve deals which are in line with the bank’s lending policies.
The announcement will prove to be positive for developers and institutional real estate owners, as banks can allocate additional capital if new transactions meet the lenders’ credit requirements. In addition, borrowers with a good track record can benefit by refinancing their loans with other banks and negotiate better and more flexible terms.
Author: Kamal Al Ansari
Kamal focuses on real estate structured financing across the Middle East and North Africa. Kamal has more than ten years of experience in transaction advisory and structured/project financing.