UAE property market shows rapid growth

The UAE boasts 365 days of sunshine, reliable economic and population growth, a booming tourism industry and massive demand for rental properties. For prospective buyers those factors, when added together, make for a very tempting package.

But what should be making investors sit up and listen right now is the recent introduction of a new property law regulating the mortgage process and therefore protecting the rights of lenders and borrowers; while significant advances in the UAE's home financing market means there is more choice for consumers than ever before.

Yes, compared to property markets in places like the United Kingdom and the United States, the UAE's equivalent may be just starting out (the property sector was first opened to foreign investment in 2002) but with central bank data showing that mortgage lending in the UAE jumped 55 per cent in the year to March, it's fair to say that the market is rapidly-developing.

Another enticing factor when considering home ownership in the UAE is the rapacious demand for rentals in the residential sector. Last week I talked about massive demand in the commercial rentals, but the same situation can be applied here.

Business people who have relocated to the emirates are also rapidly becoming disposed towards buying homes in the UAE. Supply simply can't keep up with demand right now and thanks to the new 35-article law, which oversees every aspect of a mortgage clearly defining the interaction between lender and borrower and the legal ramifications for both parties, buying property in the UAE is a more clearly-defined process than at any other time.

Mortgage lenders are amenable to offering finance for both end-user and investment purchases, making the prospect of buying-to-rent and even second-home purchases increasingly attractive.

The fact that some confident owner-occupiers (who make up 60-70 per cent of the market) are willing to take out finance against an existing property to raise cash for a secondary purchase indicates just how well the market in the UAE is viewed.

Home financiers, led by the Islamic organisations which at the moment enjoy a 60 per cent slice of the market, are facing increasing competition from foreign banks keen to get in on a slice of the action. The days when certain banks would only lend to investors buying from certain development companies are beginning to change.

International and local mortgage lenders are striving to make it easier than ever to borrow money for a property purchase in the UAE and most mortgage providers can offer customers a list of lenders to choose from.

Flexible and varied home loans are available from a variety of sources which are becoming increasingly amenable to financing commercial, under-construction and off-plan properties (assuming the planned property is registered with the Dubai Land Department under the terms of the new mortgage law).

It's also worth remembering that while the UAE market stands firm and, on the evidence given here in this column, rather bullish in the face of a global slowdown, the dirham is still pegged to the dollar. That means that while supply is outstripping demand, meaning that rates can be sizeable, the UAE central bank is forced to track a number of US interest rate cuts and home loan rates are lower than at the same point three years ago.

Recent reports cite that property prices in Dubai have increased over 70 per cent since the beginning of 2007 and over 20 per cent since the start of this year. So right now buyers in the UAE are not looking at the two to three per cent profit gain in a year that they may make elsewhere, but instead the margins are considerably higher. With profits like that, interest rates can easily be seen as a secondary consideration.

The writer is Managing Director, Better Homes.