The United Arab Emirates' four largest banks have substantial loan exposures to real estate at a time when Dubai's property sector is set to remain under pressure for the coming 12 to 24 months.
S&P Global Ratings predicts the UAE real estate sector will likely remain subdued until beyond 2022, with the country's overall GDP expected to return to 2019 levels sometime in 2023.
Abu Dhabi Commercial Bank PJSC has the highest level of property exposure on a relative basis, with 29% of its total gross loan book of 250.45 billion dirhams lent out to the real estate sector as of Dec. 31, 2020. Emirates NBD Bank PJSC has the lowest relative exposure, at 12% of its total gross loans, but it has the largest absolute amount of loans to real estate, and this is also its second-largest sector exposure after sovereign loans.
Real estate loans also make up the second-largest chunk of both Dubai Islamic Bank P.JSC's and First Abu Dhabi Bank PJSC's loan books.
Residential real estate prices declined 9.5% on an annual basis, as of Dec. 31, 2020, while the commercial property market saw sales prices fall by an average of 8.9% in 2020, according to data from ASTECO.
A large fraction of loan deferrals have related to the real estate sector. Some 40% of those granted by Abu Dhabi Commercial Bank during 2020 were for real estate investments, while 26% of loan deferrals First Abu Dhabi granted under the government's Targeted Economic Support Scheme have been for the real estate sector.
Dubai Islamic Bank's head of investor relations Kashif Moosa told analysts at the bank's 2020 full-year earnings call that the lender did not intend to expand its real estate concentration.
ADCB said in its own annual earnings report for 2020 that although the real estate market remains oversupplied it expects a positive impact in the near-term in Abu Dhabi specifically due to upcoming visa and citizenship reforms, as well as long-term residency programs for foreigners.
The pandemic has hit real estate in the UAE from many directions, from hospitality suffering from travel restrictions to office vacancies climbing as working from home becomes increasingly normalized, according to S&P Global Ratings.
The agency expects marginal improvements in the sector in 2021, despite the boost tourism and real estate investments are expected to receive from the recent normalization of diplomatic ties with Israel and Qatar.
The profitability of real estate companies is expected to remain under pressure, and leverage expected to be high. Some firms may cut dividends or sell assets.
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