Dispelling all doubts, mortgage-linked sales in Dubai property market records sharp increases from a year ago, when rates were at all-time lows. Image Credit: Shutterstock

Dubai: Higher mortgage rates are not putting off end-users buying property in Dubai – even Wednesday’s (March 22) second 0.25 per cent rate increase is unlikely to cut into demand. Dubai and UAE property market’s status as a ‘safe bet’ is trumping all other considerations, market sources say in describing the return of mortgage demand.

Prevailing mortgage rates during January-February 2022 was around 2.99 per cent against the 5.75-6 per cent now.

Ramadan specials

Banks are now rolling out 5-year fixed-rate mortgages at 5 per cent as part of their Ramadan offers, to keep the momentum going. If rates were to drop at any point in the next year or so, the borrower can easily refinance the deal and pay off at the new rates.

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During January and February, mortgage-backed property deals in Dubai are actually higher than what they were same time last year – despite rates being at the lowest point in that period. Interest rates – and mortgage loans – started to rise only from March 2022, and since then there have been 9 increases, including the one late yesterday.

In fact, the January and February 2023 mortgage numbers do come as a surprise, because in Q4-2022, such deals had seen a significant drop. It was felt that higher rates would seriously eat into end-user demand, and that cash-ready buyers – mostly investors – will dominate.

Cash ready buyers
One trend that still holds true is cash-ready buyers from Russia and some of the other CIS republics interested in property investments.

“These days, these buyers are not only wanting luxury/super-luxury homes in Dubai,” said Florine Rusu, Managing Director at Market Price Real Estate. “There are deals involving them and mid-priced homes, with Damac Lagoons being a clear choice. Waterfront properties are the preferred choices and all these deals are settled in cash. No mortgage.

Currently, Rusu is heavily marketing a two-bedroom unit at 1/JBR with a full sea-view, and with a price tag of Dh10 million.
Stock - Florine Rusu
“Apart from the Palm, the other choices involve Bluewaters’ homes and also the 1/JBR tower,” said Rusu.

That’s not how deals have been panning out since the start of the year. “Mortgage transactions in the first two months grew 20 per cent compared to 2022 in Dubai,” said Mohamad Kaswani, Managing Director of Mortgage Finder. “We are seeing application volumes already surpassing Q1-2022 by more than 40 per cent, which is an indication of mortgage demand moving forward.”

We are seeing application volumes already surpassing Q1-2022 by more than 40 per cent, which is an indication of mortgage demand moving forward.

- Mohamad Kaswani of Mortgage Finder

Lending banks too make changes

Since the start of the year, UAE’s mortgage lenders too have tweaked their game significantly. While there’s not much they do with rising rates, ‘Banks are looking to offer customers other value propositions,” said Thomas McLaughlin, Country Manager – UAE at the mortgage-focussed portal Holo.

“A property valuation will cost between Dh2,500–Dh3,000 plus VAT. Processing fees will be an average 0.5 per cent, but could be as high as 1 per cent of the loan value.

“Lenders are offering 0 per cent processing fees or discounts on valuations. Offers such as these mean customers have lower upfront costs when buying a property. Or if they are choosing a mortgage into which fees can be incorporated, the amount they will need to borrow can be reduced slightly.”


The number of residential mortgage transactions recorded in Dubai property market during 2022

Not smaller mortgage sizes

The demand rise on mortgages is also not because property buyers coming in are looking to lower priced properties, of Dh1.5 million and less and for which banks are willing to lend because they see lower risks.

“This is not a trend that we’ve identified with,” said McLaughlin. “Buyers continue to prefer to borrow at the top end of their lending eligibility.

“We have actually seen transactions at Dh1.5 million and below remain flat. They continue to be around 37 per cent of our Q1-23 transactions, as they did in Q122. While these transactions continue to account for the same proportion of our business, we’re actually seeing an increase in our average loan size overall.”

UAE banks continue to battle for top spot with additional offers (on mortgages). This has seen consumers able to benefit from offers such as 0% processing fees or discounts in valuations

- Thomas McLaughlin of Holo

Take in their stride

Clearly, based on the data so far this year, there is no sign of a slow down from end-user buyers. Yes, cash-based transactions continue to dominate, as overseas buyers keep pouring in funds into assets in the UAE.

Property market sources say the ongoing crisis in the global banking sector could end up releasing more funds into the local property market.

McLaughlin sums it up best: “We tend to see an uplift in the UAE market when there are global economic issues - the UAE is seen as a safe bet.”