Up to $30bn in Dubai 2012 property deals in cash

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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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Posted by: roulette russe

@ Clean Steve, good theory but very risky. Would you take a loan and go to casino to bet in one go? that is what you are doing. on top of that EU and US authorities will get tougher on their citizens bringing money back from UAE. They don't need to push local authorities to control money laundering (for geo-strategic reasons for the moment, things do change in politics). They will just monitor the money their citizens bring from UAE and tax them heavily. So who ever has not transferred money via official channels will have to explain. This in case you don't lose it before due to a new change in law or market collapse. It is unwise to play with your life economy in a opaque market.

Posted by: John Thomas

At "Clean" Steve - your theory needs a good scrub and a lot of bleach!!
Firstly - Why would anyone in their right mind take a loan in Europe to invest it in Dubai?? Perhaps if the person have severe mental issues! Why take a loan out where there are "real laws" and real foundations to invest it in sand castles that can be washed away the very next day when someone wakes up and decides to change "the laws" yet again?? Doesn't seem like a good and sound proposition to me; does it to you?!

Secondly - you are deviating from the core subject which is "dirty money" and we all know where it comes from; try walking around any European Airport with a $1M stashed in a suitcase and see what happens...

Sorry your "logic" is deeply flawed and non-relevant to the subject at hand. Pour some Clorox on it and then come back!

Posted by: Clean Steve

I have a property abroad and took a mortgage out on it of 700,000 Euros.

The rate to borrow is very low in the Euro zone.

I therefore turned up with 700,000 euros in cash in Dubai, and purchased the property here without a loan.

Is my money black/dirty or laundered? NO!!!!!

Its all in the detail.

Posted by: Ronald

Nice to know there are some legitimate cash buyers. A top agent told me a wonderful yarn about some Russians arriving on a private jet with so many suitcases of cash they needed three taxis. They bought a building for Dhs120m (20m above the asking price) and sold it a month later for Dhs90m, money laundered, developers joyous and agent in the clover with two whopping commissions. This same agent, when asked would he invest in Dubai property, replied: "Not with my money!"

Posted by: Red Snappa

It is obviously cheaper to pay cash than buy property on a mortgage unless it's a buy-to-let and the mathematics stack up in terms of the mortgage. service charges and any other add ons are taken care of within the rental amount. Which ever form of home loan you take out conventional interest bearing or Islamic, the lender makes a profit.

I too thought the central bank had clamped down on the origins of large amounts of cash, when it came to depositing it in bank accounts. Or do the bank's just ask you where you got it and accept the answer?

Just when we thought that we were in a new mature and infinitely more structured era of the property market in Dubai, it's reassuring to know that you can still turn up at an estate agent's office with four stout duty free carriers full of currency to buy a villa.

Posted by: Horseman

so it seems that 'flippers' are not the problem in the market, rather people with large amounts of $$$$ whose source should more than likely be looked at rather closely.

Are there not currency controls or declarations of cash in transit!?!? Just a thought ;-)

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