Eight in ten people in the UAE want to buy a home in the next five years, according to Beyond the Bricks, a global report released last month by HSBC. The report, which assessed the views of more than 9,000 people in nine countries and more than 1,000 respondents in the UAE, points to certain barriers that need to be addressed to encourage more people to purchase homes in the UAE and not elsewhere.
The report, which focuses on non-homeowners, indicates that the respondents are interested in buying their first homes “anywhere, not just in the UAE”, says Kunal Malani, HSBC Middle East’s head of customer value management, retail banking and wealth management.
Developers therefore need to cater to the needs of first-time homebuyers, who account for a sizeable chunk of the UAE market. According to the report, the UAE has a much bigger proportion of first-time homebuyers than the global average, with around 82 per cent of non-homeowners looking to purchase their own homes in the next five years. “This is higher than the global average, where 73 per cent of non-owners intend to buy property in the same period,” says Matt Colebrook, HSBC’s regional head of retail banking and wealth management.
The report also shows significant barriers to home ownership, including insufficient salary, which was highlighted by 62 per cent of respondents.
Expensive down payments was also cited in the survey, affecting 42 per cent of respondents.
Barrier 1: Finding the right house
One of the first obstacles for the budget-conscious is to find the right property to live in. Craig Plumb, head of research at JLL Middle East and North Africa, says there is currently a big shift in buying patterns in the UAE. “Until five years ago the market was investor dominated,” he says. “Today, people are looking to be owner-occupiers intending to live in an apartment. Increasing mortgage transactions indicate that the market is shifting from speculators.”
Data from the Dubai Land Department shows that mortgage transactions are increasing. Malani says, “We are seeing a shift to home ownership and witnessing a higher number of mortgages. Actually, the number of mortgages has doubled in five years.”
When buying a home to live in, there are several factors to consider. Affordability particularly stands out. Over the years, developers have been solving this hurdle by creating smaller, cheaper homes, which may not be favourable to tenants currently occupying larger units.
“The size of homes is getting smaller,” says Plumb. “Traditionally, UAE apartments have been quite large, which means the ticket price is large. Affordable homes are addressing the issue by delivering smaller units.”
Solution: While the units are getting smaller, planning efficiency has gone up, both in terms of home layout and community facilities. A homebuyer may benefit from weighing the amenities and checking how efficiently the space has been used.
“Developers today are also building amenities,” says Malani. “The communities are more complete with residential and retail facilities, along with schools and mosques. The space that you have is better managed.”
Barrier 2: Monthly payments
The research shows that despite low salary growth, home ownership is a desirable goal. Citing external data, Beyond the Bricks says that while average property prices in the UAE fell by 5.4 per cent last year, salaries in real terms are expected to grow by only 0.5 per cent this year. About 62 per cent of non-owners in the UAE highlight the need for a higher salary as a stumbling block to home ownership. Exacerbating this challenge, the research shows that people admit to not planning carefully, with 82 per cent of non-owners in the UAE who want to buy their own homes saying they only have an approximate or no budget at all.
Solution: Being realistic may be an answer. Malani says, “While we do appreciate that the market conditions today are challenging, there are clearly areas where people can make improvements. By getting a full view of your finances and remaining committed to a budget, you can go a long way towards reducing existing and future pain points.”
A good rule of thumb is to set aside what you intend to spend on rent or buying a property. “Dubai is still relatively expensive to buy,” says Plumb. “Most people want to spend 30 per cent of their income on a home. In Dubai this can be as high as 35-40 per cent for renting or buying [a house].”
Barrier 3: Deposit
Forty-two per cent of home aspirants said that saving for a deposit is part of the problem. Among millennials (those born between 1981 and 1988) who intend to buy their own homes, 45 per cent said that they have not yet saved enough for a deposit, which, for first-time buyers, may be up to 25 per cent of the cost of a property worth Dh5 million.
Solution: Malani maintains there is much that can done. For example, one can move in with a relative to save for a deposit, although only six per cent of millennials surveyed intend to do so. This would also reduce the need to depend on other sources, such as parents. Malani says half of millennial homeowners have asked support from their parents for funding — the highest globally according to the survey. In the UK, only 35 per cent of millennial homeowners relied on their parents, while it is 32 per cent in the US.
Cutting down on lifestyle spend is the other piece of advice. The research shows that the millennial non-owners intending to buy are willing to make sacrifices, with 45 per cent saying that they would spend less on discretionary expenses.
Barrier 4: Waiting too long
Real estate markets are cyclical in nature. Much of the work of timing a purchase involves research on the right property and the right time to buy or get a mortgage. But Malani explains the decision is “less about timing the market, but more about finding a home — to find that corner villa unit, with a little corner space, or just a better view. They are thinking long term.”
Solution: The right time to buy is often when you are ready. As prices go, Plumb maintains that the market has bottomed out. “Sales prices have fallen about 13 per cent from a peak in mid-2014,” he says. “There has been zero change in prices in the last quarter, which means that we are probably at the bottom of the cycle. This is the first time that this has happened in 18 months.
“With prices having declined over the past 18 months, this year will continue to be a buyer’s market in Dubai. Our research shows that sales prices are now bottoming out, although transaction volumes remain low. We believe the market is close to the bottom of its cycle, with some increases possible in the second half of 2017, as the market recovers again over the next few years. Given these conditions, now is a good time for those interested in buying property in Dubai.”
Waiting too long may be counterproductive. “We are expecting the next movement to be upward — it won’t be dramatic — in the second half of the year,” says Plumb.
Barrier 5: Pricing the finance
This is akin to a buyer’s remorse when bills pile up and new homeowners feel overwhelmed by the size of their commitment. According to the Beyond the Bricks survey, among all homeowners who have purchased property in the last two years, around 67 per cent spent more than they had initially budgeted. The most common reasons for this were broker fees (64 per cent), legal fees (62 per cent) and renovation costs (57 per cent).
When the payments are complete, Malani says, “You have still only bought the house. But first-time owners are buying a home. They want to renovate or fix the kitchen... They are not budgeting for it.”
Solution: It is important to plan and anticipate expenses, such as broker’s fees, transfer costs and renovation expenses. “We always advise people to budget about 35 per cent of the [property’s] value to cover the deposit and the closing cost when looking to buy a home, so that they can accommodate any unexpected costs and fees,” says Malani.
