Dubai mortgage surge as tenants flee rent rises

• Mortgage approvals up 40%
• Interest rate rises defied
• Property prices up sharply

There was a 40 percent increase in the value of home mortgage approvals in Dubai last year despite climbing interest rates, with tenants seeking to get on the property ladder to dodge rising rents, according to new data.

Not since the 1980s, when the US Federal Reserve tried to curb inflation, have interest rates shot up so drastically.

In the UAE, mortgage rates climbed from below 2 percent in early 2022 to about 5 percent by the end of 2023.

The Emirates effectively mirrors the Fed’s monetary policy because of its currency peg to the US dollar, including interest rates. While the Fed does not directly set mortgage rates, which are determined by individual lenders, its rate changes influence lending prices for home buying.

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Higher interest rates and inflation usually dampen demand in the housing sector. But Sawan Karia at Huspy, the property platform that provided the latest data, told AGBI that the UAE has defied these forces.

“The growth we’ve seen despite the increase in interest rates has primarily come from an influx of population and new capital deployed in the real estate sector,” Karia said.

“The inflow of new residents has meant that rental demand increased significantly, prompting many existing residents to consider purchasing a home. We are also seeing demand from non-residents.”

Property prices in the emirate have continued a sharp ascent, with the first half of 2023 recording the fastest increase in nearly a decade, up 16.9 percent year on year.

Yet residential rents in Dubai soared by 21.7 percent in the year to June 2022, outpacing sales price growth, and this trend continued into 2023.

Karia predicts that interest rates will drop by at least 0.75 percent in 2024. He also expects a rise in non-resident and commercial lending in the UAE.

He said that Huspy witnessed a 45 percent increase in the value of mortgages last year, slightly outperforming the market’s overall growth.

In November 2023 the total value of mortgages the company processed in a month crossed the AED1 billion mark for the first time.

Mohit Bhojwani, sales consultant at Property Zone Real Estate in Business Bay, Dubai, said the cooling of mortgage rates after the Fed’s “no change” announcement in December has Dubai bankers “jumping up and down” about the expected boom in business.

“They are expecting to sell many more mortgages this year, and although the rate came down to 4.25 percent, some banks are already starting to renegotiate down to 3.99 percent,” Bhojwani said.

“The rent situation and property prices are showing no signs of cooling still, so a lot more end users are going to be buying homes this year.”