Revealed: How Dubai renters can save by opting to buy

An Arabian Business investigation shows where it’s cheaper to pay a mortgage than continue to rent
Revealed: How Dubai renters can save by opting to buy
By Courtney Trenwith
Sun 08 Sep 2013 01:56 PM

Dubai renters could save money by buying a similar property, an analysis by Arabian Business has revealed.

As rental levels increase and mortgage rates remain low, the value of annual rents and mortgage repayments has become comparable and, in most cases, it is now cheaper to buy.

For example, the average price of a one-bed apartment in Dubai Marina is AED1.4m ($381,000), according to the Arabian Business Better Homes Live Property Index.

Taking into account a 20 percent deposit, which is the level most UAE banks expect, the average mortgage rate of 3.99 percent plus fees and a 25-year loan, annual mortgage repayments for an average one-bed apartment in Dubai Marina equal AED70,941, according to the HSBC online mortgage calculator.

That is a saving of more than AED14,000 compared to the average annual rent of AED85,000.

The savings are similar in Downtown Dubai, where a one-bedroom apartment costs an average AED1.7m and annual mortgage repayments using the same calculations equal AED86,143.

With the average annual rent at AED100,000, paying off a home loan could save AED13,857.

Buying a two-bedroom apartment on the Palm Jumeriah, worth an average AED3.2m, could save nearly AED13,000 compared to paying the average AED175,000 rent each year.

Families looking for a three-bedroom villa also can save by buying.

A villa in Arabian Ranches is worth an average AED3.65m, with annual mortgage repayments totalling about AED185,000, the same as the average annual rent.

Starting smaller, with a studio, also produces large savings of more than AED13,000 in an area such as Jumeirah Lakes Towers.

Similar savings can be made across the emirate.

However, the largest properties in Dubai, such as a four-bedroom villa in Jumeirah Park still cost more to buy than rent.

Dubai residents are increasingly taking advantage of the savings and becoming home owners, with mortgage brokers and banks telling Arabian Business they have experienced exponential growth in home loan applications this year, with the number of approvals doubling at many institutions.

The number of mortgages registered with the Dubai Land Department skyrocketed more than 46.1 percent in the first seven months of the year, from 1,632 during the same period last year to 2,385. The total value rose 65 percent from $6.91bn to $11.5bn.

“The rents are on the rise and the [mortgage] interest rates are declining so effectively what’s happening is the mortgage payments are now lower than rents,” general manager of Dubai finance brokerage, Independent Finance, Sam Wani said in an interview with Arabian Business magazine published on Sunday.

“The interest rates have fallen because there’s a lot of liquidity in the market and that’s fed into the banks. And rents are rising because more and more people are coming back into town because the economy is growing.”

Gulf Capital Mortgage Company executive director Shehzad H Abbasi said one international bank’s UAE offices had approved $70-80m worth of mortgages each month of summer this year, including during the traditionally quiet Ramadan period.

“That is more than that bank has ever done, even in the boom days, so there is booming business for the finance side for many banks. They’re doing very well from it, but they’re still conservative and there is still some realism,” he said.

Mortgage rates have significantly fallen from levels as high as 9.75 percent in 2009 to 3.99 percent at most banks today.

Meanwhile, rents have risen an average 9 percent this year. Although purchase prices also have put on an average 30 percent.

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