In 2024, can mortgage rate cuts swing more UAE residents to choose buying over renting?
Mortgage rates have peaked, and that is the prompt many residents were waiting for
After 11 rounds of hikes, interest rates in UAE should see a series of drops in 2024 as a result of any US Fed decision to cut rates.
The sense of relief is palpable in the real estate market, and the effects of it already being felt. While the UAE market did see phenomenal performance last year – primarily due to a rise in cash buyers and offplan transactions – there were questions raised around how much purchasing power mortgage buyers would have.
They will once again find themselves in a position to give their cash counterparts some healthy competition and rediscover options that had become closed to them. There will also be a deepening of that dilemma that has affected many tenants across the city – does it make more sense to buy now, or to keep renting?
Rates are already dropping
Interest rates were left unchanged at the end of 2023 and although the Fed hasn’t officially announced any rate cuts yet, UAE banks are reducing theirs in anticipation. Several major banks are offering very attractive rates right now and are already flooded with applications. Once the Fed makes its proclamation and further rate cuts go into effect, we can expect to see buyer activity levels ramp up even more.
New Year, new home planning
With the new year comes a set of new goals and resolutions, some of which are forgotten before January is even over. More significantly, this is when people start to re-evaluate their living situations and their housing plans for the year.
As an example, a tenant living on Palm Jumeirah who is looking at the prospect of rent increases would have weighed the options at the end of last year – would it be better to look for cheaper rentals in less prime areas? Or to just move out of Dubai altogether?
Speaking from the experiences of friends and acquaintances, many went home over the holiday season, and it served as a good reminder that they would rather stay in Dubai for the long-term. Now that they’re back in the city, they are looking at their housing situation from a fresh perspective.
Finding the deciding lifestyle factor
When it comes to renting versus buying, there are several conversations that people tend to have with themselves. Money is a significant factor, of course, and this is where the drop in mortgage rates will galvanize potential buyers into action.
There is also the very important question of location – moving out of an area like the Palm to a community such as Mira Oasis is a big lifestyle change, but it comes with the benefit of living in a new community that offers plenty of amenities for families.
On the other hand, it does add to one’s commute time for work and school, but I think that people are willing to make certain compromises for the sake of an overall lifestyle upgrade.
Renovation revolution
One benefit of buying that I fully expect people to take advantage of is the possibility of renovations. If you are currently renting an apartment or a villa, there are limits to what modifications you can make to it subject to your landlord’s permissions.
If you’ve bought your own property, you are now in a position where you can renovate or upgrade your property to your desire. It’s not something that will happen immediately, but anyone who buys today will undoubtedly be looking at making some changes in another 2 years.
We have seen that trend in Jumeirah Islands, which saw a massive wave of upgrades over the past 18 months. A similar trend is very likely to sweep areas like Arabian Ranches III, for example, a few years down the line.
Foothold in the prime market
I have always found the Dh3 million to Dh5 million price bracket to be very interesting, because that’s essentially the dividing line between general market and prime market. Back when property values and mortgages were both much lower, this provided an easy jumping point for buyers who wanted to move up to the prime segment of the market.
As prices have risen and we’ve gone through 11 interest rate hikes, that segment has been largely dominated by cash buyers. This year, I expect mortgage buyers to play a healthy role in that space once again.
There are some really fantastic options for entry level buyers today, including Arabian Ranches III and Tilal Al Ghaf, both only going to keep growing over time. It is the perfect opportunity for a new buyer to stake their claim and to make a sound investment.
Overall, we are looking at a very healthy market in 2024 with increased levels of activity in the general market and prime space as a result of better mortgage rates. Tenants who are considering the possibility of becoming property buyers are going to be in a fantastic position and might want to take that leap before they miss out.