UAE Central Bank removes 20% cap on real estate lending

The UAE Central Bank’s decision to remove the 20% cap on real estate real estate lending as a percentage of the total deposits of banks comes at an opportune time for the country’s property development sector and real estate market. The underlying sentiment driving this opinion is that ongoing adjustments in the liquidity that the Central Bank can contribute to the markets would allow for greater control on investment cycles, with the option to stimulate growth as well as to soften the impact of any downturn.


In effect, the fixed 20 per cent cap has been removed so that a more market-driven and flexible policy can be enacted. The Central Bank can now respond to its assessment of the current state and future projections for the real estate sector at any given time and choose to withhold or add capital inflow represented by the banking sectors’ total funds loaned (1). With the lending cap regulated by law, intervention of the Central Bank was limited in the past. By granting greater flexibility, the banking sector can now act as an additional tool to help the market adjust to trends and economic cycles. The move gives the Central Bank a discretionary autonomy regarding setting real estate caps, which in turn facilitates greater control and influence on the markets.


Economic leverage will be crucial in a more globally integrated UAE real estate market

Several strategic and regulatory changes made recently are opening up the UAE economy to greater influence from factors beyond its borders. In line with the vision to position the UAE as a global hub, the UAE government has introduced several new laws and visa regulations that favour its expatriate population and overseas commercial investors. While these positive engagements with other markets are sure to add to the strengths and available capital within the UAE, it will also increase the nation’s interdependence on cyclical movements within those external economies. Gemini Property Developers CEO, Sunil Gomes points out that this deeper engagement with global trends will ultimately prove to be a net positive for the UAE economy. In his opinion, the Central Banks increased powers of influence will be a crucial economic lever granting the economy greater stability.


The UAE was a premier regional destination for FDI inflows in 2017, making up 22% of the total for all Middle East and North Africa economies(2), with the final figures for 2018 expected to reflect a further consolidation.  This FDI inflow is adding to the investment pool in the real estate sector, which is also set to benefit from enactment of the five-year extendable retiree visa and the 10-year expatriate visa laws. While overseas investors have favoured the UAE, and Dubai in particular, as an investment destination for some time already, these reforms add considerable impetus to the trend. In the broader context, the

Central Bank’s enhanced ability to intervene and rationalise market movements is an essential and welcome amendment to regulations.


How will long-term considerations be reconciled with immediate prospects?

Abdul Aziz Al Ghurair, the federation chief of UAE Central Bank has noted that removal of the lending cap is a measure that became possible under the provisions offered by a new law that came into force from October 2018 (3). As per his statement to media, the fixed 20 per cent cap has now been replaced with a more flexible policy whereby the Central Bank may choose to impose restrictions on the banking sectors’ loans to the real estate sector, depending on its views on the health of the realty sector in the economy. No new ceiling has been enforced by the administration in place of the previous one as yet. According to Mr Al Ghurair, the Banking Federation is coming to an agreement with the concerned regulatory bodies to determine how real estate will be defined in the future. For instance, it is yet to be identified whether loans for assets such as hospitals, schools, malls and mortgage lending will be acknowledged as real-estate loans moving forward or if there will be guidelines that make distinctions.


Sunil Gomes is of the opinion that current window has already created some interest among investors. Sunil feels the trickle effect of the removal of the loan cap could well be felt on the mortgages and end-user home loan market and further is of the opinion that a future extension of this regulation, one that reduces the cap on mortgages, could result in a continued favourable outlook for the real estate industry and prospective investors, by reducing the entry barrier for many individuals who could not access real estate previously. Currently, first-time buyers of a home worth up to Dh5 million can only borrow up to 80 per cent of the property value if they are UAE citizens, while the cap for foreigners/expats rests at 75 per cent.



The Dubai real estate eco-system is enthusiastically preparing for an expansion of the market. Recent projections from several industry watchers predict market resurgence. At the same time, the UAE administration has implemented several checks and balances to control the more opportunistic practices of previous periods of expansion as well as develop a more mature profile of Dubai’s realty sector. Against this backdrop, Sunil Gomes believes the flexibility that the new law affords the Central Bank is crucial to balance market trends, providing necessary stimulus when required while reigning in unhealthy practices. Sunil feels the UAE Central Bank could allow some room for inflationary stimulus initially, followed by a firmer hand that enables the market to aim for a more mature status. He also anticipates that the slightly longer-term influence will be led by the expansion of the affordable and affordable luxury sections of the market.

As a resurgent future awaits the UAE real estate sector, the UAE Central Bank’s interactive engagement with the banking sector could actively drive and regulate real estate trends using a flexible cap that can be tweaked as per market opportunities and challenges.



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