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The first half of 2021 witnessed an upsurge in mortgage-backed sales in Dubai as attractive interest rates and property prices encouraged several investors and long-term tenants to become real-estate owners in the city.
“Over 12,000 mortgage-linked purchases have [been] recorded in the first six months of 2021, worth over 20 billion dirhams, compared to around 7,000 last year, which totalled about 10 billion dirhams in value,” Imran Hussain, a senior partner at Knight Frank Middle East and the head of UAE Residential Valuations, told Zawya.
According to Hussain, the upsurge is expected to persist into the second half of 2021. “Mortgages in the UAE are provided to a diverse range of properties, even towards the prime property segment,” he said, adding that Frank Knight is currently valuing residential properties estimated at over 100 million dirhams for mortgage purposes for several banks.
According to a recent report from Mortgage Finder, mortgage transactions increased by 91 percent during the first half of 2021 compared to the second half of 2020. Moreover, the report stated that 40 percent of Dubai sales transactions in the first half of 2021 were completed with a mortgage.
ATTRACTIVE INTEREST RATES
Ian Vaughan, Senior Mortgage Consultant at Mortgage Finder, told Zawya that mortgage interest rates in the UAE are at record lows, with mortgages now available starting at just 1.99 percent compared to 2.49 percent in the middle of 2020. Banks in the UAE are open for business and are offering more competitive products now. We anticipate that rates will remain at record lows well into 2022 and potentially 2023.”
In addition to lower interest rates, the down payment requirement for first-time buyers has decreased to just 20 percent, making buying more favourable and accessible now.
Vaughan added that, following the lockdown in 2020, the market has witnessed more interest from residents wanting to own and move into bigger spaces, especially properties with private gardens and pools. “We have seen an almost 50/50 split in mortgage transactions for villas/townhouses and apartments, whereas historically apartments generally proved more popular with our clients.”
“First-time buyers accounted for 76 percent of our mortgage transactions in the first half of 2021,” he said. “The majority of our buyers in the first half of 2021 were from India and the United Kingdom. Moreover, with the upcoming Expo 2020, we are hopeful for more foreign interest, with businesses relocating staff and non-resident buyers/investors coming into Dubai. With interest rates of sub–3 percent and 60 percent loan-to-value easily available to non-resident buyers, we hope to see more interest from non-residents as Expo 2020 begins.”
MORTGAGE BUYING PATTERNS
Mortgages are typically used by home-buyers and families rather than cash investors. Nick Grassick, Managing Partner at PH Real Estate brokers, said that a high percentage of the mortgage buyers they work with are long-term tenants who recognise the value of paying for their own mortgage as opposed to someone else’s.
“Dubai is home to a significant number of long-term expats; these families have watched prices contract over six years to reach record lows last year, and since then have watched the market rebound and surge. They may own property overseas, but this is likely to be their first domestic home purchase,” Grassick said.
He also noted that the easing of the COVID-19 lockdown last year resulted in an incredibly speculative market, which typically means cash investors, and that banks were reluctant to lend to buyers due to the global uncertainty.
“As the economy has opened up, banks have become more relaxed about lending, which, in turn, lowers their interest rates,” he added. “This trend is then compounded with competition between banks. As the property market has gathered momentum, so too have the number of buyers wishing to borrow from the banks; this competitive environment drives rates lower still.”
Rakesh Mirchandani, CEO of RNR International Real Estate, said that his company has witnessed a surge of mortgage-backed sales coming from homebuyers in the country as well as from non-residents since the beginning of 2021. “We’ve had many more clients this year buying through a mortgage or bank finance.”
“First-time home buyers can obtain a higher loan to value, which helps them with their cash flow,” he continued. “Moreover, the increase in rents has influenced renters to become owners. For example, a 3/4-bed villa in Sidra, Dubai Hills, was around 150,000 to 170,000 dirhams p.a. last year, and now they would be renting for 250,000 dirhams p.a. Most buyers may have realized that owning a property today using EMIs or monthly mortgage repayments, compared to the annual rent, is cheaper.”
(Reporting by Hina Navin, editing by Seban Scaria)
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