As rents rise, is now the time for more Dubai tenants to seriously think of buying their own home?
Residents shed concerns about mortgage rates - but should they buy offplan or ready home?
Dubai: Will more of Dubai’s tenants finally decide it’s a time to stop renting and put up funds for a home of their own?
More tenants could be in the mood to turn end-users, now that the cycle of mortgage rate hikes seem to be coming to an end. Or should do so soon enough.
But the biggest incentive would be the continuing rise in the rents they are paying to their landlords. There are no signs yet that the pace of rental gains will be slowing down any time soon.
“Another set of sharp rent demands when leases come up for renewals will convince residents they need to seriously consider buying a home,” said a source at a leading developer. “I think the recent advertisement from FAB – which says that only landlords are having a good time – will hit its mark. It’s a sentiment that many prospective property buyers share.”
Mortgage numbers are rising again
In the year-to-date, UAE’s mortgage numbers are already showing that more tenants are entering the property market as buyers. Banking industry sources forecast a potential ‘rush’ of end-user buying in the second-half of 2023.
There is little doubt developers marketing new projects are capitalising on the international appetite for Dubai property. They are doing this with elevated square foot pricing and aggressive payment plans, such that cash investors are seriously considering the secondary market, despite the seller premium and also expedite their investor/ Golden Visa requirements.
“Tenants turning into home owners had slowed down in the final months of 2022, mostly because of the mortgage rates and the rise in property values,” said a banker. “Developers had turned their attention to overseas buyers and investors – now, they are realising they can do just as well offering optimally-prices homes and with the right incentives on payment plans, registration fees, etc.”
So, where should these buyers be looking? Offplan is where much of the action is happening in Dubai property, accounting for an overwhelming 60 per cent of all sales in recent months. A sizeable boost has been provided by Emaar’s launch of ‘The Oasis’, a $20 billion, 100 million square feet development that’s the biggest offplan launch in Dubai in recent years.
Also on the radar will be the first of three communities that Abu Dhabi’s Aldar will launch in Dubai. The build-up of anticipation for these is already intense, with market sources saying that pricing could well be in the mid- to upper-mid range and which could be a ‘sweet spot’ for end-users.
It is interesting to see the significant rise in offplan transactions - hinting of a future that knows no slowdown.
Is Dh1,200 a psf that 'sweet spot'?
Currently, the majority of transactions in Dubai are ‘occurring in the middle’, with the bulk of the ready properties being bought at or around the Dh1,200 a square foot mark, according to a new report by GCP-Reidin.
This is happening even as Dubai real estate continues to reel in a series of eye-catching deals, where the pricing tends to be above the Dh10,000 per square foot range.
“When it comes to villas, we see that Palm Jumeirah maintains its astonishing dominance,” the GCP-Reidin report notes. “Palm Jumeirah alone is outperforming enough to skew price data for Dubai’s entire real estate market upwards.”
There is a lot still happening at the Palm when it comes to offplan – Nakheel has already launched the 300-metre, 71-storey ‘Como Residences’ on its flagship island. The next big sales launch would be that from the Armani project the Sharjah-headquartered Arada has on the Palm.
Offplan or ready?
The price gap has widened between offplan launches and what ready homes are selling for. This price dynamic applies even in mid-market communities across Dubai.
This is what Property Monitor had to say in its May update: “New development projects in Tier 2 communities (are) seeing average price per square foot values recording marked highs in contrast to the existing residential supply in the community.
“For example, Arjan - which has had multiple successful project launches by developers such as ORO24 and Samana - achieved an average of Dh1,267 psf in 2023, whereas existing ready projects are trading at an average of Dh851.
“Given the record-high number of new developments launched in recent months, and an outlook of several more upcoming throughout the year, we may see the pace of price appreciation continue to trend high and be driven by the offplan segment.”
So, the obvious route for end-users would be to seek a home in the ready/secondary market. But it will not come easy, because whatever available stock of ready homes may already have found new buyers.
That leaves them with the offplan choice. Even if it means having to pay more, they will find that developers are willing to cut deals and ease their cost concerns to an extent.
The other option would be to pick up homes that are on the verge of getting completed and then see if the developer is willing to offer a rent-to-own transition.
Interest to buy mid-market apartments and townhouses in old and new areas of Dubai has never been higher across the nationality spectrum, from Russians to Asians. The vast majority of buyers are end-users, where we have seen buying in the ready as well as offplan space
What tenants wanting to turn into property buyers should not be doing is wait any longer to invest in a home. No one knows when the current upbeat market cycle will turn. As Dubai and the UAE continue to attract new residents, it sure seems rent increases are not going to go away soon.