UAE’s property loans improving despite price slide, IMF says

Falling property prices 'do not appear to pose systemic risks for the financial sector,' the IMF said.

Dubai’s average residential real estate price plunged 11 per cent in 2015, the IMF said. Pawan Singh / The National

The quality of real estate loans in the UAE has continued to improve despite sliding home prices, the IMF said, in a sign that the UAE is coping better with a real estate downturn than it did in the previous slump seven years ago.

Dubai’s average residential real estate price plunged 11 per cent in 2015 and in neighbouring Abu Dhabi prices sank 0.8 per cent, the IMF said after annual consultations with the UAE government.

But non-performing loans in the construction and real estate development industries shrank to 7.5 per cent of the total at the end of March this year from 12.3 per cent in 2013, the IMF said.

The quality of loans to households – a measure of financial strain among home buyers – has also been improving, with the ratio of non-performing loans dropping to 4.9 per cent from 10 per cent over the same period.

As a result, falling property prices “do not appear to pose sys­temic risks for the financial sector”, the IMF concluded.

That is a change from the last slump, when the bursting of a speculative bubble in real estate prices strained the balance sheets of banks across the UAE and brought Dubai’s government close to defaulting on its debt.

This time, steps taken in 2014, such as tighter self-regulation in the property industry, rises in real estate transaction fees imposed by the government and mortgage loan caps introduced by the central bank, have limited speculation and the amount of bad loans, the IMF said.

The strength of the banking system appears to be helping the UAE ride out a region-wide economic slowdown caused by low oil prices. The IMF has pre­dicted that Abu Dhabi’s GDP growth will fall from 4.4 per cent this year but remain solid at 1.7 per cent.

In Dubai, where the economy does not rely directly on oil and state-linked firms are vigorously pushing tourism and real estate projects, the IMF actually expects growth to accelerate marginally, to 3.7 per cent from 3.6 per cent.

The consultant firm JLL said Dubai’s residential property market was continuing to drop, with apartment prices falling 5 per cent from a year earlier in the second quarter of this year and villa prices sliding 6 per cent. Overall, the market has fallen about 15 per cent from its peak in the middle of 2014, JLL estimated.

“Providing there are no major external shocks over the rest of the year, we expect the Dubai residential market to recover in early 2017,” JLL said, although it added that uncertainty caused by Britain’s decision to leave the European Union might delay the recovery.

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