Banks’ real estate exposures grew at a moderate pace last year
Decline in real estate valuations over the past year has raised some concerns about the asset quality of banks’ exposure to both real estate and construction sectors. However, the latest stress test of banks by the Central Bank of UAE has shown the asset quality of the commercial and residential rea
Published -
Jul 13, 2019 6:22 AM
Decline in real estate valuations over the past year has raised some concerns about the asset quality of banks’ exposure to both real estate and construction sectors. However, the latest stress test of banks by the Central Bank of UAE has shown the asset quality of the commercial and residential real estate loans remained stable during 2018, while it deteriorated for the construction sector. Reflecting the structure of the non-oil UAE economy, the key sectoral exposures in the wholesale lending portfolio are real estate, services, trade, and construction. While real estate and construction are two different segments, they share a similar trait in their dependence on the performance of the real estate market. The key sectors within the retail portfolio are personal loans, mortgages, credit card loans and car loans. While the decline in the price and rentals have an impact on the asset quality of loans linked to these sectors, the central bank data showed the UAE bank loan exposure to the real estate sector grew at a more moderate pace during 2018 at 8.5 per cent compared to 18.1 per cent in 2017. The outstanding balance of real estate loans amounted to Dh379 billion at the end of 2018, which was slightly above 20 per cent of total loans. In commercial real estate, office space rent prices declined at a faster pace compared to the previous year in both Dubai and Abu Dhabi. In Dubai, office space rents declined 4.8 per cent in 2018 compared to a 2.4 per cent decline in 2017. In Abu Dhabi, office space rents declined 8.5 per cent in 2018 compared to a 7.3 per cent decline in 2017. While rent prices declined further, the supply of completed office space increased in 2018, growing by 1.6 per cent in Dubai, and 11 per cent in Abu Dhabi. Office occupancy rates in Dubai and Abu Dhabi remained stable at 80 per cent in 2018.
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