After nearly five years of strong growth in the property sector, the UAE real estate market is beginning to cool. But according to Moody’s Ratings, the country’s banks are well positioned to manage the shift.
Thanks to regulatory caps, strong capital buffers, and healthy liquidity levels, lenders are expected to remain stable even if the property cycle softens over the next 12 to 18 months.
Here is what is driving that confidence.
Controlled Exposure to Real Estate
UAE banks do have exposure to real estate through corporate lending, construction finance, and mortgages. However, regulatory safeguards have significantly reduced risk concentration.
In 2022, the Central Bank of the UAE capped banks’ exposure to construction and real estate at 30 percent of credit risk weighted assets.
As of the first half of 2025, aggregate exposure stood at around 18.3 percent, well below the limit. This provides banks with flexibility even if market conditions soften further.
Over recent years, lending to the real estate and construction sector declined steadily.
Down 6 percent in 2022
Down 4 percent in 2023
Down 8 percent in 2024
Up 4 percent year on year by September 2025, largely due to falling interest rates
Today, real estate and construction account for 12 percent of total loans, compared to 19 percent in December 2021. This marks a clear reduction in sector dependency.
Mortgages and Personal Lending Remain Strong
While corporate exposure has moderated, personal loans for consumption have grown by around 18 percent year on year as of late 2024 and 2025. These now represent 23 percent of total gross loans.
This category includes mortgages, meaning banks still retain indirect exposure to property.
Mortgage lending has surpassed pre pandemic levels, supported by strong real estate activity. However, a significant portion of property transactions in the UAE continues to be completed in cash rather than through bank financing. This reduces systemic risk compared to highly leveraged markets.
Developers Are Diversifying Funding
Another important shift is how developers are financing projects.
Since 2023, UAE developers have raised nearly 12 billion dollars through sukuk, bonds, and hybrid debt instruments, reducing reliance on project specific secured bank loans.
These issuances come with maturities averaging around 2 billion dollars annually between 2027 and 2030. This spreads refinancing risk and reduces direct pressure on bank balance sheets.
Strong Capital and Liquidity Buffers
One of the strongest reasons for optimism is the banking sector’s improved fundamentals since the 2008 to 2009 financial crisis.
As of June 2025:
Core banking liquidity stood at 23 percent of total assets
The non performing loan ratio fell to a record low of 2.9 percent
Loan loss provisions remain above 100 percent coverage
The non performing loan ratio has halved in recent years due to improved recoveries, write offs, and stronger risk management.
These buffers act as a cushion if asset quality weakens during a real estate slowdown.
Profitability May Ease but Remain Solid
As monetary policy eases, banks may face pressure on net interest margins. Asset yields could decline faster than funding costs, narrowing spreads.
Provisioning charges are expected to rise after a period of strong recoveries. Returns on assets, which reached a record 1.9 percent between December 2023 and June 2025, may moderate.
However, strong non interest income and disciplined cost management are likely to offset part of this impact, keeping profitability at healthy levels.
The Bigger Picture
The UAE property market may be entering a cooling phase, but this is happening after years of strong growth and balance sheet strengthening.
With exposure limits in place, diversified developer funding, low non performing loans, and strong liquidity and capital buffers, UAE banks appear structurally prepared.
Rather than signaling stress, the slowdown may represent a normalization phase in a more mature and better regulated market.