Among Dubai residents, there has been an escalating trend of buying property through bank mortgages, according to reports. This is largely due to the rising cost of rentals, which in some cases have exceeded the cost of monthly mortgage repayments.
Interest rates have been climbing, but the spike in rents has been even more dramatic. As a result of rising interest rates, rents in the emirate have grown much faster than mortgage rates, thus prompting many residents with long-term plans to purchase properties through mortgages.
Residential rents in Dubai peaked in 2022, increasing by an average of 26.9 per cent, with average rents for flats and villas increasing by 27.1 per cent and 24.9 per cent respectively.
However, the UAE Central Bank decided earlier this month to raise the benchmark interest rate by a further 25 basis points - from 4.90 per cent to 5.15 per cent - with effect from 4 May 2023.
Mortgage Finder said that the mortgage market exceeded expectations and maintained growth in the first quarter of 2023, with a significant increase of 19% compared to the same period in 2022. This is despite a significant increase in interest rates and property prices.
Benjamin Stafford, CEO of Inicio, said that people are now looking at the cost of ownership versus rent, and even as mortgage rates rise, mortgage costs are almost in line with the average cost of annual rents, making property ownership an attractive and viable proposition.
"Dubai is experiencing a boom in renters turning to the mortgage market to become buyers, in some cases paying even less than their rental payments," he said.
"With loan-to-value ratios increasing from 75 per cent to 80 per cent - and in some cases up to 90 per cent - over the past two years, people are seeking smaller deposits for affordable ownership," he said, adding that Dubai's reformed visa regime and the increase in loan-to-value options offered by banks has spurred expatriates to migrate to Dubai in search of readily available properties to mortgage and to purchasing a property to obtain a residence visa.
The growing loan-to-value ratios allow for smaller deposits, increasing the viability of property ownership, he said. In addition, the expanding range of mortgage products provides flexibility for potential buyers, making fixed rate mortgages increasingly sustainable.
Stafford said that between May 2022 and April 2023, property mortgage transactions in Dubai increased by 40 per cent, equating to 11,800 transactions and a range of US$51.2 billion in property values.
Espace Real Estate said there has been a significant increase in demand for mortgages over the past year, as mortgage leads generated a staggering 49 per cent.
According to Espace's Q1 2023 Market Insights report, there has been considerable growth in property ownership in key areas of Dubai's vibrant and popular communities, including Meadows, Jumeirah Golf Estates, Spring, Arabian Ranches and The Lakes.
In addition, the Emirates Hills community saw the largest increase in property ownership at over 167%, indicating that demand will continue to rise in the coming months.
John Lyons, managing director of Espace Real Estate, said total contract volumes were down, while new contract volumes were down, but renewals were up.
"Tenants who can afford to buy are choosing to do so because of the financial benefits of owning their own home versus renting a comparable property in a high priced rental market. In addition, the residential market is still quite valuable globally, which is the reason for the "fear of missing out" on long-term capital appreciation. Those who cannot afford to buy choose to renew their existing leases to get some relief from the Real Estate Regulatory Authority's (Rera) rent cap, or choose to move further away to somewhere more affordable."