Stock Dubai skyline
Home ownership for all... Dubai has the high-rises and communities for the wealthy and upwardly mobile. By making cost of ownership more accessible, city can widen that base further. Image Credit: Virendra Saklani/Gulf News

As 2020 unfolded, the world witnessed circumstances induced by the COVID-19. A global recession with a 5.2 per cent downturn hit the world. Soon, there were analyses citing 2020 as the worst meltdown since World War II.

However, news of vaccines have brought back a ray of hope, and the negative impact is now being viewed as a short cycle that can be evaluated on a quarter-to-quarter basis.

Housing is greatly influenced by economic conditions. If the economy drags, real estate suffers. To shoulder such an impact, policies and legislations need to be established, such as those regarding tax deductions, investor benefits, interest rates, mortgage policies, and ease of loans, among others.

The size and scale of the real estate market, with its outstanding returns and stability, make it an attractive and lucrative sector for many who wish to secure their future. One that is of paramount importance to all economies – especially the UAE’s.

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Adding to the relief

The world observed as the Emirates took speedy steps to rescue their economy, with relaxed regulations on foreign ownership of businesses outside of free zones, the removal of a 20 per cent cap for banks’ real estate lending, and increased economic activity due to the anticipated 25 million visitors who will be attending Expo 2020.

Investors who pumped in Dh5 million and more in real estate projects leveraged relaxed visa rules, and there were stimulus packages from the Central Bank, and improved affordability following price falls. There were reductions in government fees and on annual rents of commercial establishments during the pandemic.

And then there are the low price points that make the UAE a real buyer’s market.

A shift is in store

Mid-income earners are facing a tipping point. A majority aspire to switch from renting to home ownership, seeking a lifestyle in proximity to their work as well as to retail and leisure hubs.

Most homebuyers today are high-income individuals looking for long-term passive income from residential investments in well-planned and often luxurious communities. That said, a growing chunk of our customers are also end-users, especially young mid-income millennials, who purchase properties as primary homes and are becoming increasingly aware of the benefit of moving from renting to ownership.

They are beginning to realise that when they rent, they are only helping pay off someone else’s mortgage. When they could very well turn this mere rental-payment expense - or dead investment - into instalments towards a profitable asset. When purchasing a property, monthly instalments are sometimes lower than what one would spend on rent, allowing homeowners to save money and also own a valuable asset once the mortgage is paid off.

Accessible home ownership

Governments have been active in establishing lucrative policies even before the pandemic, attracting even the more cautious investors. In Europe, for example, advanced regulatory systems provide both safe and promising opportunities.

In Switzerland, two mortgages can be obtained to fund one home. The initial mortgage funds 60–70 per cent of the purchase price, with a lower interest rate compared to the second mortgage. Repayment periods are also significantly longer, with mortgages of 50 to 100 years being passed on to subsequent generations, increasing longevity and the quality of the properties.

Such policies encourage mid-income earners to consider property purchases and have the ability to buy better quality homes at higher prices.

No bars to investments

Instead of relaxed regulations on foreign investors, France’s strategy is to boost the real estate sector by completely waving off restrictions for foreign buyers. At the start of 2018, 57.8 per cent of French households were homeowners, 37.9 per cent had completed housing payments, and 19.9 per cent were making payments.

This policy made France a lucrative hub for foreign investors who would come into the market with a large buying power and augment the sector and, in turn, the economy.

Low interest rates and bond yields in Germany boost growing demands despite the fact that most borrow on long-term rates, which would be higher than tracker rates. Residential property transaction volumes rose 7 per cent to $22.5 billion in 2019 from 2018. Cities such as Berlin, Hamburg, Frankfurt and Munich are ranking among the best places to invest in real estate.

There are many reasons for this – in part the housing shortage, but also the government’s ways of regulating how property values are recognized, such as by banks, which enhances the market’s stability.

In the UK, those who are not able to afford to build their own home due to income limitations are granted access to an equity-loan system, with subletting and renting restrictions applying. As a result, the UK witnessed 390,000 first-time-buyer mortgages in 2018, the highest since 2006, and 1.6 per cent more than earlier in the year. An implementation of such a policy boosts housing ownership among mid-income earners.

Restoring equilibrium

The UAE is well-known for its sophisticated high-rise buildings and communities, and remarkably extravagant lifestyles. As mid-income earners look to secure their future with savvy investments, in which real estate certainly represents a safe, lucrative form of investment, policies and regulations that cushion their expenditure and boost their morale in purchasing will inject confidence.

To restore the equilibrium, governments can focus on the design and implementation of further financial and legal instruments to put policies into practice. We aspire to see Dubai as a city of homeowners, where the dream of having one’s very own property manifests for all types of buyers, international and local, and high- as well as mid-income.

- Farhad Azizi is CEO of Azizi Developments.