Home ownership in the United Arab Emirates has always been well below the global average. An HSBC survey two years ago found that only about 28 percent of the population own the home they live in, compared to 64.5 percent in the United States and 63.5 percent in the United Kingdom.
At the same time, the HSBC survey found that people were aspirational about getting their hands on the keys to their own place
Over 80 percent of UAE residents who were tenants told the survey they were hoping to stop renting and buy a home within the next five years.
Last week, I spoke to a number of real estate experts about what the latest trends were in the market. One interesting point to emerge was that people are keen to buy a property in Dubai but funding is the big barrier.
“Buyers need around 33 percent of the property value in order to purchase. Allsopp & Allsopp conducted a survey amongst tenants across the city and asked 100 people if they would buy if they could get a 95 percent loan. Seventy seven people out of 100 said they would – the sentiment is there, unfortunately the ability is not,” Lewis Allsopp, CEO of Allsopp & Allsopp, told us.
Squeezing the rules
A number of years ago, the government changed the mortgage deposit rules in order to stop the market from overheating; that solved the issue at the time, but now, with oil prices down and the economy a lot slower, the problem is reversed and the market really needs a booster.
So, do the mortgage rules need to be relaxed again so those who want to get on the property ladder can get access to funding, especially at a time when there’s no shortage of units coming online in some of the most sought-after locations in Dubai?
Downtown Dubai will have 7,300 apartments for sale added by the end of 2020, Dubai Creek Harbour will have an additional 4,600 properties for sale, while Palm Jumeirah is expected to see an additional 3,700 homes for sale by the close of next year.
Those who do have the funds to buy are certainly taking advantage of the market. Earlier this month, a senior official at Dubai government-owned property developer Nakheel said demand for luxury homes in the emirate had remained strong, as prices became more affordable.
“What I noticed last year was the supply in luxury had reduced and the supply in the lower budget housing had increased,” Aqil Kazim, Nakheel’s chief commercial officer, said in a television interview with Bloomberg.
“Today we have a strong demand on luxury because of that limited supply in luxury that happened last year. This has been a blessing in disguise as it has made property very affordable for new customers,” he said.
Allsopp & Allsopp has seen this too and reported that it had seen a 23 percent increase in those classed as luxury buyers – those with a budget of more than AED5m ($1.36m) to spend.
Villa sales usually make up the bulk of luxury sales and, according to real estate portal Property Finder, villa prices in Dubai have dropped 4.3 percent in the first few months of 2019.
Another interesting trend to emerge from the Allsopp & Allsopp data was that new tenant registrations have grown year-on-year over the last five years, up by 31 percent in the second quarter of this year. By comparison, the number of new buyer registrations increased 37 percent in Q2 of 2019, compared to just 16.5 percent in Q2 last year and 12 percent in Q1 this year.
“The cycle that we see in Dubai is that people will rent for a couple of years and then, if they see themselves in Dubai for at least the mid-term, look to purchase,” Lewis Allsopp says.
So, it comes down to the old issue: people are keen to buy but they don’t have access to the funds right now.
Unless the rules change, it seems the only option is to starting saving, and there have been many reports that have already told us that residents in the UAE aren’t great at that.
Real estate data company ValuStrat says homes priced at around AED1m or less are the most popular, so if you don’t have the deposit saved up at the moment, you will need to start putting away around AED5,000 per month for the next five years to have the ready cash in the bank. If you really want to get on the Dubai property ladder, it seems it might be time to start tightening your belt first. Cancel that Friday brunch?
Shane McGinley, Arabian Business, 23.8.19