Mortgage caps cool dubai real estate

Photo: Sboyd

Prices climbed 3 per cent in the second quarter of 2014, according to Colliers International, far below average price rise of 20 per cent last year. Indeed, Knight Frank's Global House Price Index revealed that Dubai price growth totalled 24 per cent in the year to June 2014, down from 27.7 per cent in the year to March 2014.

The slowdown is attributed to measures taken in the last year by the Central Bank to tighten mortgage lending. Indeed, mortgage caps now mean that expats purchasing a property worth less than Dh5 million must pay a minimum 25 per cent deposit, and a minimum of 35 per cent for a property worth more than Dh5m. (This rises further to 40 per cent for second homes.) Domestic buyers also require a 20 per cent, 30 per cent and 30 per cent deposit respectively.

Off-plan property purchases, meanwhile, require a 50 per cent deposit, as officials try to slow down speculative investments from buyers intending to flip units for a quick profit. Indeed, sales soared 53 per cent last year, according to the Dubai Land Department, pushing up prices at an unsustainable rate. At one point, Dh1.2 billion worth of property sales were recorded in a single day, a 50-year record.

Some, though, say the new restrictions are too restrictive.

"The federal mortgage caps have had a notable impact on the volume of villa deals, with the upper end of the villa market being most affected,” Faisal Durrani, an international research and business development manager at Cluttons, told The National.

Combined with a transaction fee hike from the DLD (doubling to 4 per cent to deter speculators) and the threat of higher interest rates in the very near future, now lenders are trying to attract back cautious customers.

One product that is now being offered is a home equity mortgage, which lets borrowers with high equity or low debt to release collateral in exchange for a monthly payment.

According to Mortgage International, the number of people taking out a home equity release mortgage has jumped 50 per cent in the last 12 months.

"They have always been there in the region," Warren Philliskirk, the director of Mortgage International in Dubai, told the publication. "But they have become more popular in the past year.”