Dubai: Rising rent prices drive residents to opt for mortgages to buy property

An escalating trend of buying properties through bank mortgages is being reported among Dubai residents. This is primarily due to the rising cost of rents, which in some cases has outpaced the cost of monthly mortgage repayments.

Interest rates have been climbing, but the surge in rental rates has been even sharper. Rents in the emirate have increased much faster than mortgage rates due to the increase in interest rates, hence, prompting many residents with long-term plans to buy properties through the mortgage.

Dubai's residential rents peaked in 2022, increasing by 26.9 per cent on average, with the average apartment and villa rents rising by 27.1 per cent and 24.9 per cent, respectively.

However, the Central Bank of the UAE earlier this month decided to raise the Base Rate further by 25 basis points – from 4.90 per cent to 5.15 per cent, effective from May 4, 2023.

Mortgage Finder said the mortgage market exceeded expectations and maintained its growth in the first quarter of 2023, with a remarkable 19 per cent increase as compared to the same period in 2022. This is despite a significant hike in both interest rates and property prices.

Benjamin Stafford, chief executive officer, Inicio, said people are now looking at the cost of ownership versus rental and, even with increased mortgage interest rates, mortgage costs are almost in-line with the average cost of annual rent, making property ownership an attractive and viable proposition.

“Dubai is experiencing a surge of renters turning to the mortgage market to become buyers at payments that are, in some cases, even lower than their rental payments,” he said.

“With the loan-to-value (LTV) ratio increasing from 75 per cent to 80 per cent – and in some cases up to 90 per cent – in the last two years, people are seeking out smaller deposits for affordable ownership,” he said adding that a combination of Dubai’s reformed visa regime and the increase in loan-to-value options offered by banks has spurred expats to relocate to Dubai and look for ready property to mortgage, and acquire a residency visa through the property purchase.

The growing LTV ratio, he said, has allowed for smaller deposits, increasing the viability of property ownership. Additionally, the expanding range of mortgage products offer potential buyers flexibility, making fixed rate mortgages increasingly sustainable.

Dubai has seen a 40 per cent increase in property mortgage transactions between May 2022 and April 2023, equating to 11,800 transactions and a $51.2 billion property value range, said Stafford.

Where are people buying?

Espace Real Estate said there has been a substantial increase in the demand for mortgages over the past year as there has been a staggering 49 per cent increase in mortgage leads generation.

According to Espace’s Q1 2023 Market Insights Reports, there has seen a sizable increase in property ownership in key districts within Dubai’s vibrant and popular communities including Meadows, Jumeirah Golf Estates, Springs, Arabian Ranches, and The Lakes.

Additionally, the highest growth with over 167% increase in property ownership was experienced in the Emirates Hills community, indicating that demand will continue to rise in the months to come.

John Lyons, managing director, Espace Real Estate, said the total contract volume is down, while new contract volume is down but contract renewals have increased.

“Tenants who can afford to buy are opting to do so as there is a financial gain in owning your own home versus renting a comparable property in the highly-priced rental market. This is in addition to the ‘fear of missing out’ on long-term capital appreciation in a residential market that still appears fairly valued in a global context. Those who cannot afford to buy are opting to renew existing tenancy contracts to receive some relief from the Real Estate Regulatory Authority (Rera) rent cap or are choosing to move further out to more affordable locations.”

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