Should Dubai property buyers go for 1% payment plan or seek a mortgage deal?
More developers offer 1% monthly payment schemes to attract end-user buyers
Dubai: With more tenants in Dubai once again looking at buying a home, developers are rushing in with payment models that can meet buyers’ expectations without straining their budgets. And these days the 1 per cent monthly payment plan is turning into a most viable option for these buyers.
In a recent marketing push, Damac was offering villas starting from Dh2.89 million at its Park Greens project in Damac Hills 2 with a 1 per cent monthly payment plan. This plan would ensure a ‘convenient and manageable financial arrangement’.
Binghatti is another developer backing a slew of projects with the 1 per cent offer.
They aren’t the only developers doing so. Online marketing campaigns and billboards on Shaikh Zayed Road and elsewhere in the city have developers going all out to convince buyers this is indeed a win-win deal.
Plus, there are many potential offplan buyers who were hoping that interest rates would have dropped by now, which would make their mortgage plans less expensive. That hasn’t happened, with the US Federal Reserve pushing the rate cut move further into the second-half of this year. Even then, the major cuts will likely happen only next year.
“This is why developers in Dubai are gunning for 1 per cent monthly payment plans,” said an estate agent. “If buyers can be convinced this would be less expensive to pay off than taking a mortgage.”
Of course, developers often ask a down payment as well, but in most instances these end up being much less than what the buyer will have to pay a bank for a mortgage.
1% vs mortgage
For sure, potential buyers are willing to be swayed by the lower cost that could come with a 1 per cent plan. How does the math work out?
The key element will be the down payment the buyer can make.
“If we assume for a 20 year fixed mortgage at 5 per cent per annum, then a Dh1 million apartment will cost the buyer Dh1.6 million over 20 years,” said Eima Hajimalian, Manager at GCP Properties.
“If we assume the down payment at Dh200,000, the EMI becomes Dh6,700 per month.
Higher EMI - but buyer get a price lock-in
“Now, for the 1 per cent payment plan, the apartment cost ends up at around the original Dh1 million at the end of the payment period - but the monthly instalment is Dh10,000,” said Eima.
“Of course, developers often ask a down payment as well, but in most instances these end up being much less than what the buyer will have to pay a bank for a mortgage.”
Another offplan surge in H2-24?
The second-half of 2024 promises to be just as busy for offplan property sales in Dubai, with developers unlikely to halt new launches during the peak summer period. Multiple industry sources say that end-user buying has been a strong component of this year’s increased sales activity.
“Last year, a lot of potential end-users were worried about the cost of taking a mortgage coupled with the rise in Dubai property values,” said a developer. “Offplan price increases are starting to stabilise – a bit – and there is now more clarity on what mortgages will be by 2025 and further.
“But developers are not waiting around – they want to sell now. And 1 per cent is the way they are getting it done.”
On home buying decisions, it's recommended to prioritize long-term goals over short-term rate fluctuations, considering them as inherent to market cycles.
‘One project every 18 hours’
Based on the year-to-date offplan launch activity, multiple projects are coming to market in Dubai – in the same week.
Usman Jameel, Sales Manager at Azco Real Estate, goes even further. “Dubai developers are launching a new project every 18 hours in 2024,” he said. “The payment plans – notably the 1 per cent one - are clearly driving offplan sales at prices even when they are significantly higher than what is available in the ready markets.”
Arsalan Pirani is Managing Director of Tabeer Developments, "Initially, there’s a 10 per cent payment required upon booking. After 30 days, an additional 10 per cent is due. Subsequently, there are 8 quarterly installments, each amounting to 5 per cent of the total cost, with the remaining 40 per cent is payable upon completion." The handover of the Tabeer project is scheduled for Q4-2026.
How are mortgages doing?
In recent weeks, UAE lending institutions have been taking note of what needs to be done to get home buyers interested in taking a mortgage. Some lenders have dropped their entry level interest rates on such deals, and data does suggest that mortgage-backed deals had made steady gains in the last two months.
“There has been a noticeable trend of lenders reducing mortgage rates from their peak levels,” said Rajender Prasad, Managing Director of Money Maestro. “Currently, mortgage rates have dropped below 4 per cent, with many banks initiating corrective pricing since Q4-2023.
“This reflects a significant improvement in pricing terms compared to the rates observed in last two years. This decrease can make homeownership more affordable and accessible.
“We recommend new home buyers secure in-principle mortgage approval before committing to any property agreement. This allows for a thorough review of all terms and conditions within property sale and purchase agreement.
“With pre-approval in hand, individuals can easily determine their budget, repayment capacity, down payment arrangements, and other financial commitments.”