The UAE faced a real estate mortgage crisis similar to that of the United States but managed to avert the problem thanks to strong government financial support, according to the Central Bank.
The UAE, the second largest Arab economy after Saudi Arabia, had been through conditions similar to those that jolted the real estate markets of the US, Japan and other industrial nations, the Central Bank said in its 45-page financial stability review report.
It said real estate booms and busts can have far-reaching consequences for the banking system as was the case in the US savings and loans crisis in the 1980s, Japan and Sweden in the 1990s, and more recently the US subprime crisis.
It noted that the Washington-based International Monetary Fund (IMF) has identified 46 systemic banking crises in which more than two-thirds were preceded by boom-bust patterns in house prices.
“The UAE real estate market witnessed a similar pattern,” it said.
“Fortunately banks avoided a major crisis largely because of the high concentration of the domestic development activity in the hands of UAE government-related institutions which benefited from the government support at a crucial time. This has enabled the bust cycle to evolve in a controlled environment and limited the systemic spill-over.”
Its figures showed the banking sector exposure to real estate after provisions stood at around Dh232 billion or a total Dh243 billion.
The report showed the net amount represents 21.5 per cent of banks’ total deposit base and 21.3 per cent of their total net loans and advances.
A breakdown showed the real estate in the UAE, which has the largest banking system in the Middle East, leaped by nearly 16.1 per cent in 2007 before slowing down to 2.6 per cent in 2008 because of the global fiscal distress.
It contracted by 13.2 per cent in 2009 and slightly rebounded by 0.1 and 0.7 per cent in 2010 and 2011 respectively.
The contraction in 2009 was part of a general slowdown in the country’s real GDP, which slumped by 4.8 per cent before recovering by 1.3 per cent in 2010 and nearly 4.2 per cent in 2011, the report showed.
Growth last year was mainly driver by a 6.7 per cent expansion in the hydrocarbon sector. The non-oil sector also swelled by nearly 3.1 per cent.
Emirates 24|7
