Mortgage interest rates and property prices are at attractive levels
I arrived in Dubai from the UK in January this year to take over as Managing Director of Mortgage Finder. Prior to the big move, I did a lot of research on the market to try to familiarise myself with both its opportunities and challenges. From my research and experience being here so far, it seems clear that it is currently a definite buyers’ market and appears to be the most affordable it has ever been. When I compare the UAE property market to that of the UK, in terms of affordability and availability, buying here seems like a great opportunity right now and not one many buyers in the UK can say they have experienced in years.
The UAE is a global player in the property market, attracting investment from all over the world. It is an amazing achievement for such a young country to reach this level of maturity in this space of time. Dubai, in fact, now attributes nearly 6 percent of GDP to the property industry, which may not sound significant, but actually makes property one of Dubai’s main industries.
As we all know, the property market in Dubai and the UAE has seen a gradual decline in prices over the last five years. I view the price change as something that was almost inevitable. Peaks and troughs in any market across the world are normal, especially when it comes to property, and coming from the UK, I am no stranger to this.
Many people talk about prices falling as though it is always a negative thing. I view this current situation as positive for so many potential buyers. It has meant that joining the property ladder has become more affordable for renters and has also allowed for both new and old investors to take advantage of the opportunity. However, it is important to remember that as much as troughs are inevitable, upticks in the market are generally not too far behind and lead to the equally inevitable peak. I think as we get closer to Expo 2020, we will see the bottoming out of the current situation, with prices starting to pick up again as new visitors, and therefore potential investors, will be drawn into the market.
The cause of the current pricing situation here is mainly due to supply and demand dynamics. With a large number of projects started and completed by developers, who are offering consumers various options when it comes to meeting their property needs, there has been an increase in supply which has not been met with demand. This has therefore affected prices as the two have not increased at the same rate.
« As we get closer to Expo 2020, we will see the bottoming out of the current situation, with prices starting to pick up again as new visitors, and therefore potential investors, will be drawn into the market. »
This is a polar opposite to what we see in the UK, where massive undersupply, mainly in London and the south, has caused house prices to rise dramatically in recent years. Potential buyers in the UK are confronted with a lack of supply, and therefore minimal choice. Whereas buyers in the UAE are lucky enough to have the choice of many great developments in both new and established communities. The decrease in prices has meant that although the same limits and caps apply when it comes to getting a mortgage to finance a property purchase here, because of the lower prices, the initial down payment amount required now is less than before. This means that some buyers who may not have had enough money to make the down payment before are now in a better position. When looking at affordability in the UAE, one thing that must be mentioned is the mortgage caps in place. This is an area which I feel could have a dramatic impact on affordability if revised, even slightly. Currently, the mortgage caps in place mean that expats can borrow a maximum of 75 percent loan-to-value on their first property purchase. This means they require a 25 percent down payment and this does not include the additional purchasing fees that need to be covered, although some banks will allow these costs to be included in the mortgage. The 25 percent down payment is one thing that would-be buyers express difficulty in raising.
In the UK, some lenders will actually allow customers to borrow up to 95 percent loan-to-value. This makes it a lot easier for those customers who can afford the monthly mortgage repayments but do not necessarily have the ability to save the down payment required for a lower loan-to-value.
By no means am I suggesting that 95 percent loan-to-value mortgages should be introduced in the UAE, but an increase by just 5 percent to allow up to 80 percent loan-to-value would make it easier for more would-be buyers to enter the market. To give some perspective, in the UK, over 30 percent of residential mortgages completed (disbursed) in 2018 were above 75 percent loan-to-value.
A change was anticipated last year when the UAE Central Bank introduced the 3 percent early settlement fee for mortgages. Many banks thought this would also lead to a slight relaxation on loan-to-values, which unfortunately did not happen. I predict that as the market further matures here, such a change will happen in the future.
For those potential buyers looking to take a mortgage, a piece of positive news which affects mortgage affordability came recently as the US Federal Reserve confirmed that it aims to hold interest rates steady this year. An increase in rates was expected at the beginning of the year, just as they have been for the past five years. However, the news that they are to remain steady has led to many local banks decreasing their fixed rate mortgages and some even decreasing their reversion margins, making borrowing more affordable.
The property market in the UAE at the moment is definitely more affordable than in previous years. This fact combined with the sheer availability of a range of different property types, many of which are built to a high standard, makes it a great time to buy.
To potential buyers who are on the fence, I would advise that if you are in a position to move forward with a purchase, then now is the time to do so. We often hear from people who are waiting for the prices to fall further or for a change in economic situation, I say you will only know we have reached the bottom when the prices increase and you have missed the opportunity.
With mortgage interest rates and property prices at current levels, now is a great time to take advantage of the situation while it lasts. I predict the market will start to change with the expected influx of people for Expo 2020 and the recent introduction of five and 10- year visas. These alone will undoubtedly have an effect on demand and therefore price in the future.
I would like to end with a quote. Warren Buffet once said when talking about the stock market: “Be fearful when others are greedy, and greedy when others are fearful.” I feel this is somewhat applicable to the property industry in the UAE at the moment. Potential buyers should be taking advantage of the opportunities available and purchase now while they can make the most of the situation.
CHRIS SCHUTRUPS
Managing Director, Mortgage Finder
