Dubai mortgage market doubles in size over seven-year period

The number of homes changing hands in Dubai may be slipping, but the mortgage market is in rude health, having doubled in size over the past seven years, according to a report released yesterday.

The Reidin/Global Capital Partners report states that mortgages as a percentage of sales activity have now reached 55 per cent, which it said represented a structural shift towards more mature markets, such as the US and UK, where cash sales account only for 30 to 40 per cent of transactions. In 2012, the ratio of mortgages-to-sales activity in Dubai was below 20 per cent.

Sameer Lakhani, the managing director of research consultancy Global Capital Partners, said that the greater reliance on mortgages to finance home loans may be a contributing factor to the lower levels of transactions, as they take longer to complete.

He also said that deals involving mortgages were less volatile than cash-only deals.

“So obviously you will see a lower velocity of transactions, but these are more stable and less speculative in nature,” he said.

Overall property transaction value in Dubai fell by nearly 3 per cent to Dh259 billion last year from Dh267bn in 2015, and the number of transactions fell to 60,595 last year compared with 63,719 deals a year earlier, Dubai Land Department figures show.

The Reidin report showed that villas are much more highly leveraged than apartments, with the number of mortgages taken out on villa properties last year exceeding the total value of villas sold.

Mr Lakhani said that this provided evidence that those living in larger homes had started to refinance to extract equity from properties that may have appreciated in value since their initial purchase.

“That’s a typical, normal phenomenon that you see in the West,” he said. “People top up, people refinance.”

It also showed that banks no longer had a preference for “government-sponsored” developers like Nakheel, Emaar and Dubai Properties, with the number of loans secured against properties built by private developers exceeding those linked to the government for the first time last year. The weight of money also shifted from established communities like Dubai Marina and Jumeirah Lakes Towers to newer, mid-income areas like Jumeirah Village Circle and International Media Production Zone.

Mr Lakhani said the overall increase in home loans showed that there is finance available in the market for those looking to buy their own homes, despite the concern expressed by a number of consultancies about available liquidity in the market.

“There was a time when banks were reluctant, but that has passed,” Mr Lakhani said. “In 2008, when the market tanked and we had our first boom/bust cycle, at that time banks were not willing to lend at all. There was a huge contraction in liquidity. This time around you’re not seeing it. Banks are stepping up to the fore,” he said.

A report by Phidar Advisory last week cited liquidity constraints as a factors that continues to place downwards pressure on Dubai house prices, which it expects to continue falling this year as a result of the strong dollar, to which the dirham is pegged, and the fact that a “jobless” recovery is not creating demand to fill a growing supply pipeline.

It said that any interest rate hikes in the US “should increase the cost of debt in Dubai, which increases development and investment costs … In a market already struggling with liquidity constraints, rising interest rates will be a deterrent, unless yields adjust upwards, which, even with stable rents, would push down property prices,” it said.

Phidar said liquidity constraints are likely to ease this year as a result of bond issuances to plug fiscal deficits of neighbouring states like Saudi Arabia – a key source market for Dubai property buyers.

According to broker CBRE’s Dubai Annual Market Update, the volume of sale transactions in Dubai’s residential market dropped by about 13 per cent last year to 41,776 compared with 48,000 in 2015.

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