Banks and finance companies are being crowded out of the UAE property recovery, as 31 mortgage providers chase a market dominated by cash buyers and home-loan books fall by the most in two years.
The amount of mortgages outstanding during the first quarter of this year fell by the most since 2011 despite a substantial rebound in Dubai property prices.
Property loans across banks' balance sheets fell by Dh3.8 billion during the first quarter, representing a 2.3 per cent dip to Dh155.9bn and the third consecutive quarter of declines, according to data released this week by the Central Bank.
The number of active mortgage lenders has more than doubled within the past two years, with many growing market share by convincing home owners to refinance their existing mortgages at lower rates.
"People who were holding mortgages before at higher rates managed to remortgage these properties at lower rates," said Sam Wani, the general manager of the mortgage adviser Independent Finance. "The mortgages books have got spread out because more lenders have come in," he added.
Banks are now experiencing smaller interest payments and anticipating slower rates of growth. Borrowers have been aided by a Central Bank cap on early settlement fees at 1 per cent of loan balance or Dh10,000, whichever is lower.
The dip in mortgages, the biggest since the first quarter of 2011, coincides with a substantial amount of cash buyers entering the Dubai property market.
It is estimated that around 80 per cent of recent purchases have been made in cash, said Matthew Green, the head of research for the UAE at CBRE.
"That's the kind of market this has turned into recently," he said. "A lot of cash about, coming in, whether it be from Iran, Russia, India or Pakistan."
Many of the cash buyers have been a lifeline for mortgage buyers who bought at the peak of the market, but they are also cannibalising banks' mortgage books.
"Some bad mortgages got paid off because clients succeeded in selling their properties," Mr Wani said. "That helped banks to clear some of their mortgage books."
After experiencing one of the world's deepest property crashes in 2008-2009, Dubai has bounced back. Recent research by Deutsche Bank showed 16 months of consecutive price rises across the emirate until April.
The UAE has now "clearly" emerged from its property slump, said Paul Trowbridge, the chief executive of United Arab Bank in an interview last month.
The bank is among a large number of lenders seeking a bigger slice of the mortgage market. Home-loan providers have risen from 15 to 31 within the space of two years, Mr Wani added.
United Arab Bank's loan book, at Dh11.6bn, has grown every quarter for each of the past three years, a total increase of 150 per cent - outstripping growth of 7.4 per cent across the entire UAE financial system during the same period. The bank has been among the UAE's most active in targeting the mortgage market.
"If you're a property lender who wrote business during the downturn and if you bought property you've clearly done handsomely out of the last couple of years," Mr Trowbridge said. "And we see further growth."
But the bank now intends to "consolidate" and be more "selective" in its expansion plans, having now reached a critical mass, Mr Trowbridge said.
Others have not been as fortunate. Tamweel, the Islamic mortgage lender, reported Islamic financing assets of Dh9bn at the end of the first quarter, the company's lowest level since June 2008.
The company was fully acquired by its parent Dubai Islamic Bank this year.
In January, the Central Bank also postponed plans for a cap on mortgage values, a move which when first mooted caused some brokers to report that the residential property market had dried up almost overnight. The plans remain under discussion with commercial lenders.