As much as US$30bn in cash was used to purchase Dubai property last year, much of it from overseas buyers looking for a safe haven, according to an Arabian Business investigation.
Contrary to most Western countries, about 70 percent of property transactions in Dubai are fully paid in cash, while the rest are covered by mortgages.
It was as high as 80 percent 12 months ago, according to people in the industry.
Sam Wani, general manager of mortgage adviser Independent Finance, said the level of cash payments in Dubai real estate was extraordinary compared to the rest of the world.
“It’s not normal,” he said. “Global cash transactions are in the realms of 20 and 30 [percent] at the most.”
The point has been used in recent weeks by supporters of the UAE Central Bank’s plan to limit the loan-to-value ratio of mortgages to as little as 50 percent in a bid to avoid another property boom after the real estate crash of 2008-2009.
Emirates Banks Association chairman Abdul Aziz Al-Ghurair said on Sunday the low level of mortgage-related property transactions meant the proposed changes would not impact on property prices and would protect borrowers.
“People have speculated that it will be negative to real estate, [but] 70 percent of the real estate sales [are] on a cash basis so it’s going to impact 30 percent [of the market],” he said.
About US$42bn worth of property was sold in the emirate last year, according to Dubai Land Department, meaning up to US$30bn in cash flowed between property owners, including multiple sales of the same property during the year.
The majority of cash-buyers were from India, Iran, Egypt, Syria, other GCC countries, North Africa and Russia, Wani said.
They wanted to avoid tax and their countries’ unstable real estate markets, but Wani said improved regulations following the global financial crisis had limited money laundering.
“They want to park their cash in a region which is stable and yields in those countries are not as good as the yields they get here,” Wani said.
“They are mostly people in neighbouring countries who are sitting on large amounts of cash who are looking for investment opportunities where they can get high yield and safety of principle.
“Rental yields here are increasing 7-8 percent across the board so it makes perfect sense for cash-rich people to park their cash in the UAE.”
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