Mortgage buyers increase with Dubai’s rising rents

Alamy via Reuters

• Mortgages edge toward 50% of sales
• Families helped by interest rate cuts
• Residential sales surge in 2024

Dubai’s property market is shifting towards mortgages and away from the traditional image of cash buyers, with tenants seeking cost-effective alternatives to counter rising rental rates.

A survey by mortgage consultancy Mortgage Finder indicates that mortgage buyers accounted for 43 percent of all ready sales transactions in the second quarter of 2024, up from 35 percent during the same period in 2023.

This change is taking place against a backdrop of stable interest rates, with the Emirates Interbank Offered Rate hovering around 5 percent for over a year and mortgage rates ranging between 4 and 4.5 percent.

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Jeffrey De Souza, head of mortgages at Lomond, an affiliate of real estate agency Betterhomes, said the increase in mortgage buyers can be attributed to soaring rental prices in Dubai.

Despite the shift towards mortgages cash buyers still dominate the market, driven largely by millionaires and entrepreneurs who prefer cash transactions. 

“We would only see mortgage buyers become the majority if there is an increase in the middle to upper-class salaried segment,” he said.

Thomas Poulson, sales director at Haus & Haus Real Estate, noted an increase in mortgage buyers in the family homes segment. 

He attributed this to several factors, including interest rate cuts making monthly payments more manageable and competitive lending rates compared to other major cities globally. 

Krypton Mortgage Brokers’ senior mortgage broker Mike Singh echoed these sentiments.

“Rising rental rates may also prompt tenants to consider buying property instead of renting, as purchasing through a mortgage could be more financially viable long-term," Singh said.

However, Singh cautioned that future trends are difficult to predict, noting that real estate markets are influenced by various factors like economic conditions, government policies and market sentiment. 

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“If the current conditions persist, there is a possibility that mortgage buyers could increase further," he said, adding that UK buyers have begun to dominate the market.

Poulson also highlighted a shift in the market dynamics, stating that cash buyers no longer hold as strong a negotiating position as they once did. 

"There are fewer distressed sellers, meaning sellers are often prepared to wait for a higher price," he said.

Dubai's residential sales surged in the second quarter of 2024, with transaction volume up 44 percent and value rising 35 percent year-on-year. Off-plan sales comprised over 60 percent of the total volume, while ready property sales comprised 52 percent of the transaction value.

"As mortgage buyers continue to grow, the dynamics of Dubai's real estate market may evolve further," De Souza said. 

"It remains unlikely they will surpass cash buyers anytime soon,” he added.