Dubai mortgage deals double in 7 years, but sales 'velocity' slows

Trend of mortgage financing will continue to increase despite headwinds, says Reidin-Global report
By Parag Deulgaonkar
Mon 30 Jan 2017 01:53 PM

Dubai’s real estate market is witnessing year-on-year growth in mortgage activity, which has nearly doubled in the past seven years, according to a new report.

However, the surge in home loans has lowered number of sale transactions, which now take double the time compared to cash deals, Reidin-Global Capital Partners said in the latest report.

Earlier this month, Dubai Land Department said property transactions fell three percent to AED259 billion in 2016 from AED267bn in 2015, as transaction numbers declined to 60,595 from 63,719. Over 41,776 transactions, worth AED103 billion, were reported to have been done in cash, while 15,000 were mortgage transactions valued at AED128 billion.

In their report titled “Dubai: A Bridge over mortgaged waters”, the consultancy’s said mortgages makes 55 percent of the transactions closed in the past seven years, mirroring trends of mature markets such as the US and UK, where cash sales are only 30 to 40 percent of the total transactions.

In 2010, the ratio of mortgages-to-sales activity was below 10 percent and steadily increased till 2016 – the apartment category beating the villa segment.

According to the report, cash transactions close in 15 to 30 days, whereas mortgage transactions because of a number of formalities required (unit valuation, no-objection certificates) take longer to close 30 to 60 days.

While mortgage to sales ratio in the apartment segment doubled in the last six years across most communities, Palm Jumeirah and Downtown reported the highest amount of mortgages.

Lately, mortgage activity in mid-income communities such as Jumeirah Village Circle and International Media Production Zone have surpassed developments such as Jumeirah Lakes Towers and Dubai Marina.

In the villa space, Arabian Ranches has the highest mortgage to sales ratio followed by Springs, Meadows and Jumeirah Park, the report said.

The report also highlighted a major change, referring to that banks and home owners becoming “more comfortable to lend and buy” from private sector developments. In 2013, the government developers accounted for 60 percent of the mortgage activity.

Despite concerns being raised over UAE Central Bank curbs on mortgages (restricting loan-to-value ratios), which came into effect in 2014, mortgage demand has “increased steadily”.

“We opine that the trend of mortgage financing will continue to increase steadily, despite headwinds such as the strong US dollar and other exogenous factors, indicating resilient underlying demands,” the consultancy’s said.

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