In Dubai, property buyers learn to live without mortgages as developers gung ho on monthly instalments

That still looks good, but not when you compare this with what it was last year.

In the first six months of 2018, mortgage-backed property deals made up 81 per cent of overall registrations. Clearly, more property owners are not waiting around to clear all the paperwork required to get banks to release funds.

Also, mortgage rates had shot up in the last 12 months, which too could have prompted buyers to dig deeper into their own funds rather than tap bank finance. Mortgage rates are currently pegged at 3.75 per cent for the first year in the UAE.

From the second year, the rate is now at 4-5 per cent. But mortgage rates are expected to see a slight dip when the US Federal Reserve cuts its base rate, expected later this month, by 0.25 per cent.

In the first six months this year, 4,073 mortgage transactions were recorded, a 26.5% drop against 5,539 deals same time last year and 5,396 deals in the first-half of 2017.

For developers, the move to offer generous post-handover payment plans and gain buyers has proved a winning strategy … at least so far. Because the alternate scenario — falling sales and high mortgage rates — would have been a nightmare for developers and the wider property market.

“The drop in mortgage-related purchases from 81 per cent to 62 per cent has happened in the ready property space,” said Sameer Lakhani, Managing Director at Global Capital Partners.

“But if we include off-plan sales as well, the percentage of sales done through post-handover payment schemes now rises to above 50 per cent of overall transactions conducted.

Gung-ho on monthly instalments

“In other words, mortgage’s share in off-plan too is coming down significantly. Clearly, buyers are responding enthusiastically to this payment mechanism, which is also why there is a rebound across the board in property value terms rather than being just restricted to the mid-market segment.”

The average post-handover payment tenor is now at 3.5 years. (Developers too are pulling back from extending these plans to “unsustainable” five to 10 years.)

So, where are buyers picking up homes in Dubai? When it comes to completed homes, Jumeirah Village Circle, Jumeirah Village Triangle, Al Furjan and communities within Dubailand accounted for more than 20 per cent of deals struck in the first-half of this year.

If off-plan sales too are added into the mix, these locations make up 30 per cent of all purchases during the period.

“The emphasis on mid-market housing has gathered momentum, accelerated by the “discounting model” where units are being offered at attractive levels compared to 2014-15.”

Developers are also going gung ho with monthly instalment schemes, typically set at around Dh4,000 or so.

Damac recently introduced one for just under Dh7,000 at its latest tower launch along the Water Canal.

'Bargains' to be had

For those buyers wanting a ready property, there are locations where prices still remain under pressure.

According to Cavendish Maxwell’s Property Monitor tracker, in the 12 months to end June, house prices declined by more than 16 per cent on average in the following locations:

There is also new supply that will put further pressure on prices.

For instance, the latest releases at Arabian Ranches III is going for Dh1.2 million and over, with 30 per cent of the payments bundled into two years after completion.

Going forward, Jumeirah Village Circle could see prices under some sort of pressure, as the latest completed homes are put up for rent. But market sources say that the extreme fear of unsold or untenanted homes is misplaced, at least for now.

“Concerns about the build-up in inventory have been expressed for awhile now, but unlike 2008, we do not yet see a high number of vacancies,” said Lakhani.

“This suggests that the discounting model is working for both tenants as well as investors/end users. While investors have recalibrated their expectations, it is clear that the demand side of the spectrum remains relatively healthy.”

Landlords paying the commission?

There may come a time when landlords end up paying a share of the rental commission. The current tradition is for the tenant coughing up the cost to the broker.

But Arif Mubarak, CEO, Dubai Asset Management (DAM), reckons that nothing in the real estate business is set in stone.

“As we transition into a consumer-focused market, we foresee a trend towards the shift in commissions whereby it will be either split between the tenant and the landlord or absorbed completely by the landlord,” he said.

“This is in line with recent RERA initiatives including the Real Estate Self Transactions (REST) that focus on digitisation and transparency to facilitate direct consumer transactions.

“Given the current market scenario, we have seen increased interest from residents to upgrade their existing home for a larger unit whether in the same community or across the DAM portfolio. We are the only institutional landlords that offer residents the unique opportunity to move anywhere within our portfolio, any time during their contract period without any penalties.”