Dubai’s Rising Rental Rates Fuel Demand for Mortgage Ownership

A growing trend is emerging among Dubai residents as they increasingly opt for bank mortgages to purchase properties. Escalating rental costs, which have sometimes outpaced mortgage repayments, have been the primary driving factor behind this shift. Despite rising interest rates, the surge in rental rates has been even more pronounced, prompting long-term planners to consider purchasing properties through mortgages. This article explores the reasons behind this trend and highlights the areas where people are actively buying properties.

Rising Rents Outpace Mortgage Rates:

Dubai’s residential rents reached their peak in 2022, experiencing an average increase of 26.9 percent. Average apartment rents rose by 27.1 percent, while villa rents saw a 24.9 percent increase. Although interest rates have been climbing, the surge in rental rates has surpassed the rise in mortgage rates, making property ownership through mortgages an attractive proposition for many residents.

Mortgage Market Growth:

Despite significant hikes in interest rates and property prices, the mortgage market in Dubai has exceeded expectations, showing a remarkable 19 percent growth in the first quarter of 2023 compared to the same period in 2022. Benjamin Stafford, the CEO of Inicio, notes that even with increased mortgage interest rates, the cost of owning a property is now comparable to the average annual rent, making property ownership an appealing and viable option.

Higher Loan-to-Value (LTV) Ratios and Visa Reforms:

The LTV ratio in Dubai has increased from 75 percent to 80 percent and, in some cases, up to 90 percent over the past two years. This change has allowed buyers to make smaller deposits, making property ownership more feasible. Moreover, Dubai’s reformed visa regime and the availability of higher LTV options from banks have attracted expatriates to consider relocating to Dubai, where they can acquire residency visas through property purchases.

Increased Demand for Mortgages:

Espace Real Estate reports a substantial increase in mortgage demand, with a staggering 49 percent rise in mortgage leads generated over the past year. Key districts in Dubai, including Meadows, Jumeirah Golf Estates, Springs, Arabian Ranches, and The Lakes, have witnessed a significant surge in property ownership. The Emirates Hills community experienced the highest growth, with a remarkable 167 percent increase in property ownership, indicating a continued rise in demand in the coming months.

Factors Influencing Property Ownership:

John Lyons, the managing director of Espace Real Estate, highlights that tenants who can afford to buy are opting for property owners due to the financial benefits compared to renting in the highly-priced rental market. Additionally, the anticipation of long-term capital appreciation in a residential market that remains fairly valued globally is a driving factor. Those unable to buy are renewing existing tenancy contracts to benefit from the Real Estate Regulatory Authority (Rera) rent cap or considering moving to more affordable locations.

As rents continue to rise in Dubai, many residents are finding it more financially feasible to purchase properties through mortgages rather than pay exorbitant rental prices. Despite increasing interest rates, the cost of owning property through mortgages is becoming comparable to annual rent, attracting more buyers to enter the property market. With higher LTV ratios and the availability of diverse mortgage products, the trend of opting for mortgages is likely to continue in Dubai.

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