The UAE Central Bank has lifted the limit on lending by banks to the real estate sector.

The cap on lending to the real estate sector, which had been in place since 1980, was set at 20 per cent of banks’ total deposits, and will be replaced by a new limit that is being discussed with the UAE Banks Federation, the federation’s chairman Abdulaziz al-Ghurair was reported as saying at a briefing on 11 November.

The new limit could be higher or lower than the previous 20 per cent cap. It is also expected to change from year to year depending on market performance, giving the central bank flexibility when it comes to managing the banking sector’s exposure to the real estate sector.

The real estate sector is a key driver of the UAE economy and developers. In recent years, prices have steadily declined, which has resulted in developers becoming increasingly reliant on offering attractive financing deals to sell off-plan properties.