This week’s quarter-point increase in the US Federal Reserve's interest rate has direct implications to the housing market in Dubai. Historically, mortgage rates in Dubai are tied to the US Federal Reserve's interest rate policy, and therefore the recent rate hike is expected to impact the local mortgage market Dubai has been showing signs of stability.
The norm is, when interest rates go up, the purchasing power of borrowers in the market goes down. Despite higher interest rates translating to higher monthly mortgage payments which automatically makes it difficult for borrowers to qualify for a loan and afford a home, just over 80% of the properties purchase seen in Dubai in this past quarter are the ones ranging from 1 to 3 million AED which are typically entry-level properties, the ones that rely on financing the most.
These are encouraging signs that the Dubai housing market is indeed well stabilized. Property transactions in Dubai increased by 5.5% in the first quarter of 2023 compared to the same period in the previous year, according to data from the Dubai Land Department. Moreover the mortgage value in the month of April, for example, was 40.7% up in comparison to this same period in 2022 totalling a 10.8 Billion AED in value showing a significant increase year on year which translates to nothing but faith in the market. This suggests that demand for property in Dubai remains strong, despite rising interest rates.
Reports do indicate that the Fed does intend to pause its rate hikes which can be only seen as further positive news allowing the interest for the already on demand property market to further develop itself and meet the 2040 plan of population increase. With cash buyers still making the headlines of big transaction volumes in the media, it is encouraging to see that despite global turmoil and changes in mortgage rates the trust deposited by the entry level buyer deposited in the Dubai real estate market remains strong change after change.