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Dubai real estate market bats off interest rate hits

Dubai real estate interest rates Unsplash/Yasmina
Asian and European private credit funds are looking at the Dubai real estate market as a potential source of expansion for their portfolios
  • Private credit funds offer competitive borrowing
  • Developers entice buyers with innovative payment plans
  • Market protected by increasing demand for homes

International private credit funds could be ready to tap into the Dubai real estate market with competitive interest rates.

The Central Bank of the UAE raised its borrowing rate in July after the US Federal Reserve pushed its interest rate to a 22-year high.

Now Asian and European funds are looking at the market as a potential source of expansion for their portfolios, according to Taimur Khan, head of research at CBRE Middle East.

“There is a growing number of private debt funds willing to provide competitive offerings,” he said. 

Developers also told AGBI that many real estate companies are adopting innovative payment plans in order to entice buyers.

“Buyers are able to take advantage of the 0 percent interest-free payment plans that Dubai developers are offering to combat the high-interest hurdle,” said Kamran Ghani, CEO of Empire Developments.

But higher interest rates are also being mitigated by “the abundance of cash buyers” and “the willingness of mortgage buyers to pay higher down payments while keeping their instalments manageable,” said Imran Farooq, CEO, Samana Developers.

The market could also be protected by a reduction on the long-term rate of home deliveries, according to consultants Knight Frank Middle East.

“The reduction in homes strongly hints at continued upward pressure on prices, particularly as the population continues to swell, recently surpassing 3.5 million residents,” said Shehzad Jamal, head of strategy & consultancy.

By the end of 2028, about 85,000 new homes will have been delivered across Dubai, with about 40,000 projected for completion this year, reported Knight Frank.

Dubai real estate interest ratesMeterora Developers
Meteora Developers launched its Vita Grande project in July after quickly selling out on previous projects

Meteora Developers launched its third project Vita Grande in July after selling out its first two properties within days of their unveiling in June – a twin tower project worth over AED204 million ($55.5 million) in Jumeirah Village Circle. 

Praveen Sharma, CEO of the company, said that although demand remains high, rising rates may have a long-term impact affecting costs of borrowing and overall affordability of homebuyers and their investment decisions.

Dubai’s inflation rate dropped to 2.1 percent in June, down from a peak of 7.1 percent last year and its lowest value since January 2022.

Dr Ullas Rao, assistant professor of finance at Heriot-Watt University Dubai, said in the short-term “sales prices are expected to increase due to producers and wholesalers passing on the burden of higher interest rates to retailers and ultimately to consumers”.

He added that the impact is particularly felt on working capital, with short-term borrowing acting as an important source of finance.

A report by the Royal Institution of Chartered Surveyors said construction activity in the UAE rose by almost 50 percent in the second quarter of 2023, despite higher raw material costs.

It also revealed that 53 percent of respondents expected 12-month profit margins in the UAE to remain in positive territory.

Rami Hussein, founder and CEO of Roya Lifestyle Developments, said: “For developers, it’s paramount to adapt, offer attractive payment schemes and maintain a balance between sustainability and affordability as they navigate this evolving landscape.”