The UAE Central Bank can now set new exposure limits for banks to the real estate sector and amend them to reflect market performance, according to media reports.
Last month, the UAE introduced a law eliminating a cap established in 1980 that restricted bank’s lending to the real estate and construction sectors to a maximum of 20 percent of total deposits.
According to Reuters, UAE Banks Federation chairman Abdul Aziz Al Ghurair has said that the federation is working with the Central Bank to properly define real estate - which may mean that a new cap may be imminent.
“Flexibility is now with the Central Bank and it may come back and change [the cap limits] from year to year depending on the performance of real estate,” Al Ghurair is quoted as saying by Reuters. “Now that [cap] is lifted the Central Bank may say 10 percent or 20 percent or 30 percent.”
According to the Knight Frank Global Residential Cities Index, residential prices in Dubai and Abu Dhabi fell by 6.5 percent and 6.9 percent in Q2, respectively.
Ghurair added that the UAE’s banks have provided the Central Bank with recommendations on what should be defined as real estate under any new restrictions, which will then allow the regulator to decide what limits to impose.
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