Although Interest Rates Have Been Rising Over The Previous Few Quarters, The Increase In Rental Activity Has Been Far More Dramatic.
An upward trend is observed among Dubai residents, as an increasing number of individuals are opting for bank mortgages to purchase properties. Escalating rental prices, surpassing monthly mortgage repayments in some instances, serve as the primary catalyst for this transition.
While interest rates have experienced an increase, the surge in rental rates has been even more pronounced. Dubai Rents have risen at a rapid pace. Outpacing mortgage rates and compelling long-term residents to consider property ownership through mortgages.
In 2022, Dubai’s residential rents reached their peak, registering an average increase of 26.9 percent. Apartment rents saw a rise of 27.1% on average, while villa rents increased by 24.9 percent. Further reinforcing the decision of residents to explore the mortgage route for their housing needs.
In a recent decision, the Central Bank of the UAE raised the Base Rate by 25 basis points. Bringing it from 4.90% to 5.15%, effective from May 4, 2023.
Despite this increase in interest rates and property prices, the mortgage market in Dubai has surpassed expectations and demonstrated remarkable growth in the first quarter of 2023. According to Mortgage Finder, there was a significant 19 percent increase compared to the same period in 2022.
Benjamin Stafford, CEO of Inicio, noted that individuals are now carefully assessing the cost of ownership in relation to renting. Interestingly, even with the rise in mortgage interest rates, the expenses associated with mortgages are nearly on par with the average annual rent, making property ownership an enticing and viable option for many.
Renters are increasingly resorting to the mortgage market in Dubai to become homeowners at rates that are, in some cases, even lower than their rental payments, he added.
“With the loan-to-value (LTV) ratio increasing from 75% to eighty%. In addition, in some cases up to 90%- in the last two years. Individuals are seeking out smaller deposits for affordable ownership,” he said. Adding that a combination of Dubai’s reformed visa regime and the rise in loan-to-value options offered by banks have encouraged expats to move to Dubai. Moreover, look for ready property to mortgage in order to obtain a residency visa through the purchase of the property.
He claimed that the rising LTV ratio has made smaller down payments possible, improving the viability of home ownership. Additionally, the variety of mortgage packages that are now available to consumers gives potential buyers flexibility. Which increases the viability of fixed-rate mortgages. According to Stafford, the number of property mortgage transactions in Dubai increased by 40% between May 2022 and April 2023. Totaling 11,800 transactions with a $51.2 billion range in property values.
Where Do People Purchase?
According to Espace Real Estate, there has been a startling 49 percent increase in the generation of mortgage leads. Which indicates that there has been a significant increase in the demand for mortgages over the previous year.
The ownership of real estate has significantly increased in key areas within Dubai’s thriving and well-liked neighborhoods. Including Jumeirah Golf Estates, Meadows, Arabian Ranches, Springs, and The Lakes, according to Espace’s Q1 2023 Market Insights Reports.
Additionally, the Emirates Hills neighborhood witnessed the biggest growth. With a 167% increase in property ownership, suggesting that demand will increase in the coming months.
According to John Lyons, managing director of Espace Real Estate, the total number of contracts has decreased. While the number of new contracts has climbed and contract renewals have decreased.
“Tenants who can afford to buy are choosing to do so. Since, buying a home has financial benefits over renting a comparable residence in the pricey rental market. Additionally, there is the “fear of missing out” on long-term capital growth in a residential market that. From a global perspective, still seems reasonably valued. Those who are unable to purchase choose to either extend their current leases in order to escape the Real Estate Regulatory Authority’s (Rera) rent cap or relocate farther away to more affordable areas.