Dubai property 'recovering strongly'

Saudi bank cites supply overhang and tight credit issues

Dubai’s property market is strongly recovering after reaching its lowest point since the 2008 global fiscal distress although the recovery remains uneven through the emirate’s various areas, according to a key Saudi bank.

Indications point to a continued recovery in this sector, a key component of the emirate’s GDP, but the momentum could be hampered by supply overhang and government plans to introduce caps on mortgage credit to individuals, the Saudi American Bank Group (SAMBA) said in its monthly bulletin.

“Increasing evidence is emerging that the property market in the UAE, and Dubai in particular, has bottomed out and that a strong recovery is apparent in certain segments,” said the report, which was released this week.

It said indices compiled by some research firms suggest that prices for mid-range villas and apartments in Dubai, the region’s business hub, were up between 30 percent and 20 percent respectively year-on-year in January.

There is also evidence that the volume of property transactions is on the rise, the report said, adding that “safe haven inflows” have certainly provided a boost to the residential market, and rising prices have helped boost the balance sheets of Dubai’s GREs, most of which have significant stakes in the property market.

This has helped revive confidence, as evidenced by the announcement of bold new projects including a luxury hotel replica of the Taj Mahal, it added.

“However, the recovery is unevenly spread, and we worry that it could yet be dented by the continuing supply overhang. New mortgage laws this year, including for the first time loan-to-value limits for expatriate and locals, may also dampen the recovery.”

Citing Central Bank data, the report showed that credit growth in the UAE, the second largest Arab economy, has remained weak despite improving liquidity conditions as well as lower aggregate loan-to-deposit ratios (94 percent) and sound capital adequacy ratios (21.2 percent as of September 2012).

It said lending remains stifled by large provisioning requirements and tighter lending regulations by the Central Bank. Total bank provisions were up another 18 percent in the year to November 2012 at $22.8 billion, while total bank loans grew by 3.1 percent.

However, more detailed data from the central bank show that credit to the private sector (excluding financial institutions) actually declined in the year to September (0.3 percent). In contrast, credit to the public sector continued to grow strongly (16.1 percent), leading to some suggestions that the private sector is being “crowded out”, it said.

“Looking ahead we expect some revival in credit growth to the private sector as economic activity strengthens and the drag from GREs debt restructuring wanes. But overall domestic credit growth is likely to remain muted at around 5 percent.”

 

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