Easing the mortgage lending norms for first-time offplan property buyers will go a long way to sustain the Dubai property boom. Image Credit: Shutterstock

Dubai: New offplan property buyers in the UAE are starting to get mortgages quicker than in the past after lenders gradually eased the requirements on project construction levels.

Where earlier banks would lend only by the time the project has reached the 80 per cent mark, these days, they are willing to do so by the 50 per cent or over stage.

Doing so will free up the prospects for the UAE property market as a whole, which is seeing an influx of new buyers among residents and overseas buyers. Even among the resident buyers, many are newcomers to the UAE and earlier getting a mortgage approval would have taken them longer.

Industry sources say that banks are clued in to the need to keep funding available, especially as the Dubai property market turns increasingly reliant on offplan launches to feed the demand.

The need is acute even after the 10 rounds of interest rate hikes by the US Federal Reserve and matched by the banking regulator in the UAE. (This week, the chances are the Fed will not add another rate hike.)

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“These days, there are lenders willing to offer 75 per cent loan-to-value to residents once the offplan project clears the 50 per cent plus mark,” said Shreen Gupta, CEO and Partner at Grid Properties, which is affiliated to the Dubai-based investment firm GII and is building towards a sizeable property development portfolio in Dubai. (Grid also has two projects in London, one of which – featuring an alliance with the fashion brand Elie Saab is complete.)

For a non-resident investor, the LTV funding is 50 per cent of the property value. What counts is that mortgage lenders are no longer waiting to disburse until the project reaches a near completion stage.

- Shreen Gupta of Grid Properties

While the Dh10 million property buys featuring overseas investors are typically done in all-cash mode, there is a growing base of new residents and first-time overseas buyers in the UAE whose interest is more towards sub-Dh5 million homes. And wo would prefer some form of developer financing support or have mortgages to pay off.

Plus, asking prices in Dubai keeps climbing, by 20-30 per cent from mid- to late 2021 levels. Prospective buyers will thus have to put up a higher down payment using their own money, and which could leave them in a tight spot once the instalment schedules kick in. So, any mortgage funding coming in by the time a project turns 50 per cent complete will be quite handy.

According to Gupta, “The majority of developers work towards getting paid 50 per cent of the property value during the construction and handover phase. There are developers offering 1 per cent monthly installment schemes, but there’s only so much that can be done through it given all the other upfront payments that are still required.”

Those add-on costs include the 4 per cent registration charges with the Dubai Land Department, the deposits required to get the utility connections, etc. Altogether, that would mean around 30 per cent of the property value going in right out.

New flexibility from mortgage lenders

Other sources in the property market too have cited the ‘more generous’ lending norms applied by banks on offplan purchases. Currently, the percentage of offplan sales to ready is at plus 50-55 per cent in Dubai and could even head higher.

"Lowering the project completion limit from 80 per cent for mortgages is one of the best ways to sustain the Dubai property market boom," said an estate agent. "This will favour those who have bought Dh1 million to Dh3 million homes and who are looking to mortgages to meet much of their commitments."