The United Arab Emirates’ real estate market may be “overheating” and rental yields in its two richest sheikhdoms indicate “growing imbalances,” according to the central bank.
Average sale prices in Abu Dhabi and Dubai have risen faster than rents, and such deviations can be “used to identify imbalances in the housing market,” the central bank said.
While “recovery of rental prices started at least a few months before the sale prices had bottomed, growth rate of rents was significantly lower than the increase in prices”. The discrepancies could indicate an “overheating real estate market,” said the central bank. It further mentioned that Residential property prices rose an average 24 percent in Dubai and 21 percent in Abu Dhabi.
To avoid another bubble, the central bank last year issued regulations restricting mortgage lending, and Dubai’s government doubled transaction fees.
While lending for home purchases rose 12 percent or 12.7 billion dirhams ($3.5 billion) last year, less than 30 percent of residential property purchases were funded through bank lending. U.A.E. bank exposure to the real estate sector is less than 23 percent of total loans.
Therefore, Bank lending cannot be considered a significant driver of real estate prices. Analysis of banking data support the hypothesis that the current market recovery is mostly driven by equity buyers and or reliance on external funding sources.