UAE Bank Loans on the Rise to Fund Property Growth

It has been just on five years since property prices dropped by more than 50 percent in the UAE, but there is hope on the horizon. Following the property boom in 2008, the market took a dive but in recent months the sector has shown promising growth; with prices increasing at the fastest pace in the world in 2013.

Protect house

And bank lending growth has also been at its most rapid for five years as lots of new development projects appear in the region, prompting investments and interest in the Dubai property market again.

There have been signs for a while that banks are increasing their exposure to the property sector once again, and recent statistics from Central Bank data shows that lending in the construction sector grew by 40 percent last year. The last time there was such a jump was in 2008 – at the time of the property boom, when it grew by 81 percent.

More preparation equals better protection

So it is clear that the outlook is extremely hopeful for the construction and property markets in Dubai. But this time round, UAE banks are preparing against the inevitable crash following such rapid growth, like what happened back in 2008.

The property boom suffered a drop afterwards, causing property prices to fall and shares to tumble. Developments had to be halted due to funding being harder to come by, and the luxury tourism sector slowed right down.

But banks are much more prepared this time around and have limits in place for loans – not to make it harder for customers, but to protect the banking sector for everyone.

Positive signs

Furthermore, Dubai property prices grew by 35 percent last year. And after learning from previous experience, the Central bank implemented mortgage caps and lending limits to protect banks from a property crash like that of years before, so the signs are encouraging. And if you’re thinking of getting a loan in the UAE, then all banks would advise to use a loan calculator to encourage sensible lending.

It looks like it is working too, as bank loans seem to be working effectively for those looking to invest and as the market has slowed down a little, the quality of lending has been sustained. This time around, banks are naturally more cautious and are putting provisions in place to protect themselves, and as property prices remain steady the impact on banks remains minimal.

Big builds and luxury tourism

There is, however, expected to be a continued growth in bank loans, as many projects are starting up in Dubai. The region has already seen more than $8 billion invested in roads, a railway extension and new builds ahead of Expo 2020 – and neighbouring Abu Dhabi is also expanding within tourism, furthering its access with a new port and airport expansion, plus major new attractions.

Emirates NBD and First Gulf Bank have also provided funding for the Burj Al Salam Towers; a build which will reside alongside Dubai’s six-lane highway and include both commercial and residential properties, plus a hotel managed by Starwood Hotels.

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