There is broad agreement that the new mortgage rules announced by the UAE central bank would help prevent a re-run of 2008 in Dubai’s property sector. But a corollary of the new situation is that a large segment of potential buyers has been priced out of the market.

After much deliberations and controversies, the central bank capped the loan-to-value (LTV) limit at 80 per cent for UAE nationals and 75 per cent for expatriates for the purchase of the first house, with a limit on the multiples of annual income eligible for mortgage finance. The rules came closely on the heels of a doubling of property registration fees, from 2 per cent to 4 per cent, in a clear move to discourage flipping, which was the genesis of Dubai’s property crash that ended the unprecedented boom.

There is nothing unusual about these measures as property markets around the world have adopted similar steps to prevent overheating. In fact, Dubai’s moves are less stringent than the clampdown by the Singapore and Hong Kong authorities, faced with a threat to the stability of their respective markets.

In the typical Dubai situation, the requirement of a 20 per cent down payment for UAE nationals may not be considered too restrictive, but a large segment of middle-income earners, who could have been potential end-users, stand excluded from the opportunity to invest in a home of their own due to the 25 per cent down payment provision. Given Dubai’s current price cycle, the requirement would be beyond the reach of the vast majority of end-users.

But then, it is end-users who provide depth to any property market. In that sense, the new mortgage funding options are expected to have only limited impact on the market.

Rebound in demand

This would mean that Dubai’s real estate market would remain essentially an investment destination, which it is largely today, considering that the recent rebound in demand and prices has been caused by a sudden spurt in the flow of cash from within the region and beyond. Recent developments indicate that it is not a bad idea per se as Dubai’s appeal as a property market from the investment point of view is becoming ever stronger.

Increased volumes of commercial and residential transactions are being recorded as investment sentiment continues to improve in view of the new expansion in infrastructure as well as the anticipation of the Dubai 2020 Expo award. Dubai’s safe haven status and its modern systems, coupled with a marked rebound in market recovery, are also contributing to the flow of investments from relatively newer destinations. Notable among these are the investments from Chinese organisations, which are said to be purely from an investment angle.

A CB Richard Ellis (CBRE) report recently disclosed that Asian institutional investors are increasingly eyeing Dubai, among other potential destinations, for large-scale investments in real estate. According to the report, part of the $150 billion (Dh550.9 billion)-strong fund by these institutions would be channelled to Dubai, along with London, New York, Sydney and a few other key property markets.

Dubai’s strategic location between east and west and its rapidly developing market are apparently creating strong investment appetite in Asia, particularly China, South Korea and Malaysia. Indians and Pakistanis are already major investors and a large part of these acquisitions are in pursuit of long-term investment goals.

According to the latest Dubai Land Department statistics, Indians have already purchased properties worth over Dh8 billion this year, compared to Dh9 billion they invested in the whole of 2012. British nationals came second with Dh4 billion while Pakistanis have invested more than Dh3 billion. A key aspect of the statistics is that a large share of investment credited to British investors is actually by UK citizens of sub-continental origin and in the form of long-term investment.

— The writer is a journalist based in the UAE.