‘Cash is king’ as wealthy real estate investors target Dubai

Rogue by Bishop Design

• Data reveals cash transactions up 55%, mortgage down 10% 
• Jumeirah Bay has the highest density of billionaires
• Market recorded 8,897 sales worth AED22.7bn in June

Cash is becoming king again for Dubai’s residential real estate as wealthy overseas investors continue to splash out on luxury homes.

By value, mortgaged buyers for villas and apartments now account for just 18 percent of the market.

Last year the figure was close to 40 percent while in 2007 just over 50 percent of transactions were financed, according to Faisal Durrani, partner – head of Middle East research at Knight Frank.

“While this appears to be a decrease in residential mortgage lending, the bulk of deals at the top end of the price spectrum are cash purchases, in large part due to the unrelenting influx of ultra-high-net-worth capital targeting Dubai’s most expensive homes, Faisal Durrani, partner – head of Middle East research at Knight Frank, told AGBI.

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“The main challenge is for banks to keep pace with the growth in the market.

“On the surface, it appears to be a big drop. However lending volumes are on par with long term levels – it’s just that the mortgaged market has been overshadowed by cash transactions.

“What that tells us is that while mortgage rates are rising, the risk to overall demand remains relatively low given the high volume of cash purchases.”

Robert Thomas, head of agency at Core, cited Dubai Land Department open data to reveal that cash transactions increased by 55 percent while mortgage transactions dropped by 10 percent year-to-date (YTD) in 2022 as total ready sales volumes increased 27 percent compared to the same period last year. 

“The rise in cash transactions is underpinned by high-net-worth individuals, residents and international buyers drawn to Dubai property market offerings coupled with favourable visa reforms and socio-economic global positioning,” Thomas said. 

“Furthermore, the rising interest rates are starting to impact mortgage transaction volumes, with more buyers choosing off-plan developer payment plans resulting in a sharp increase of 87 percent in YTD 2022 off-plan transactions compared to the same period last year.”

The rise of wealthy real estate investors in Dubai was again in the headlines last week when LuxHabitat Sotheby’s International Realty announced that it closed the single biggest residential land sale in Jumeirah Bay Island for AED180 million ($50 million). 

A location of choice for Dubai’s billionaires and beginning to resemble Monaco’s Larvotto district, Jumeirah Bay offers prime beachfront real estate for ultra-high-net-worth individuals (UHNWI) to build their dream homes.

Jumeirah Bay has the highest density of billionaires on a single stretch in the UAE. According to the Dubai Land Department, over AED953 million in sales have been recorded in this area in the first six months of 2022. 

Recent increases in interest rates have raised the cost of mortgages as the UAE continues to follow rate rises announced by the US Federal Reserve.

The UAE has seen a 1.75 percent increase in interest rates in the first half of 2022.

The shift to cash payments represents a rapid turnaround from 2021 when the Dubai mortgage market experienced a record breaking year.

The total number of transactions registered with Dubai Land Department reached 19,520, passing the previous high recorded back in 2017 by 26 percent. 

According to Mortgage Finder, the market remained strong throughout the year with Q4 recording 4,187 mortgage registrations – 10 percent more than the same period in 2020 and 21 percent more than 2019.

Morgan’s International Realty, a luxury real estate brokerage and property investment consultancy firm, said in its latest report that it expects mortgage activity in Dubai to be subdued in the short-term.

Its research team said mortgage transactions “remained constant”, despite recent interest rate hikes announced by the UAE Central Bank as existing investors and new property purchasers rushed to secure financing during the quarter at the present rates.

“As a result of the Federal Reserve’s plans to rapidly raise interest rates, mortgage activity is likely to be hampered in the near future,” it added.

“The mortgage market will inevitably be influenced by these reforms, which are implemented to combat inflation.”

However, other factors such as foreign direct investment, a rising population and government initiatives supporting long-term growth may help mitigate the negative impact of mortgage borrowing power, Morgan’s noted.

“In light of the global political and economic climate, we anticipate that Dubai will attract a greater number of UHNWIs, resulting in a robust performance of the luxury market sector through 2022 and beyond,” it reported.

Under current rules the maximum lending amount on properties over AED5 million is 70 percent of the property value for first purchases, which increases to 80 percent for properties with a value below AED5 million.

According to Mo’asher, Dubai’s official Sales Price and Rental Performance Index, Dubai’s real estate market recorded a total of 8,897 sales transactions worth AED22.75 billion in June, the highest volume of sales transactions for the month in the past nine years.

Just over 60 percent of all sales transactions recorded were for secondary properties and 39.9 percent were for off-plan properties.