Is UAE's Real Estate Market Overheating?
Asghar Paracha | 28 Aug 2014

Read this news article to know more about the overheating real estate trends in Dubai and Abu Dhabi. Banks are now taking this issue as a core to resolve future imbalances and excessively fluctuating trends.

* The picture above, showing the front exterior of the Central Bank of United Arab Emirates*

Real estate industry in UAE seems to be overheating for over a period. The residential rental yields in the country are showing imbalances in the real estate sector especially in Dubai and Abu Dhabi.

The Central bank of United Arab Emirates broke on Sunday, June 9, 2014 along with an official warning about skyrocketing property prices and rental rates.

"Presently rental returns in Dubai and the capital-Abu Dhabi are nearing upto 70 to 130 basis points below actual averages, which is indicating increasing imbalances

It stated, "The central bank is responsible for monitoring real estate development in the UAE and the bank's role over it is still its priority".

According to Gulfnews.com and Listaproperty.com blog, housing schemes and Dubai Real Estate crashed in 2008, whereas took its global ranking back by January to March for the four consecutive years and the property rates and rents have soared to 27.7 to 30 percent  since a year back.

The International Monetary Fund warned Dubai government and state-linked companies and agencies to repay the debt - $50 Billion by 2016. This may require stronger tactics to restraint in speculation.

In the months earlier to the UAE's 2008-property crisis, the present property market recovery is not marked by quick credit increase, the central bank indicated, "Adding that banks' contribution to the sector totaled $ 78.1 Billion or less than 23 percent of the entire loan record.

Real Estate market shows a little increase in lending in the year 2013, with the growth rate for over 10 percent or 1 percentage point higher than the entire loan book growth.

In 2013, the bank lending on residential purchase looked positive and showed increment by 12 percent but the central bank claims, even that wasn't too significant to drive real estate prices.

The above given figures and percentages show that banks were actively participating in supporting the recovery process in the real estate but the finances were not sufficient to support the entire setback, it supported the finance the purchase of less than 30 percent of the residential properties that were ready to live by 2013.

Banking sources or data was analysed that supports the hypothesis that the present market recovery is ruled by equity buyers or majorly relies on external funds. The central bank planned to implement new liquidity rules, will consult with banks over a new capital regime in line with the Basel 111 framework by the end of 2014. The report added that the new Basel 111 framework would continue to be implemented all across the world.

UAE's new rules and regulations on capital would emphasize over the requirements for upsized capital along with the application of the new advantage ratio and a change in capital definition, placing greater emphasis over paid-up capital, disclosed reserves and retained earnings.

The report further stretched over with UAE's financial infrastructure, saying that it could grow further and faster without experiencing any major imbalances in the system. Further stating, there was no build up susceptibility in the banking system presently.