In 2024, a significant uptick in mortgage usage, particularly among end users, is expected in the UAE as interest rates are projected to decrease by up to 100 basis points.
Real estate experts highlight the profound impact that fluctuations in mortgage rates have on prospective buyers’ attitudes toward property acquisition in the United Arab Emirates. They anticipate a considerable number of UAE renters transitioning to property ownership in 2024 due to the ongoing escalation of rental prices in the country.
ValuStrat data indicates that cash transactions currently dominate Dubai’s real estate market, with 8,238 mortgage transactions compared to 16,485 cash deals in the third quarter of 2023 (excluding off-plan transactions). In contrast, Abu Dhabi’s real estate market sees a more significant presence of mortgage transactions, recording 1,247 mortgage transactions versus 890 cash transactions during the same period.
SIGNIFICANT IMPACT
Following eleven rate hikes, most bankers and economists anticipate a reduction of 25 to 100 basis points in interest rates by the US Federal Reserve in 2024. The UAE mirrors the Fed’s monetary policy due to the dollar-pegged dirham.
Ayman Youssef, managing director of Coldwell Banker, notes that lower rates typically stimulate demand and bolster home sales, whereas higher rates may decrease affordability and potentially slow down the market. However, he underscores that Dubai’s market resilience to higher rates is due in part to the prevalence of off-plan sales, where developers often offer payment plans to investors.
Svetlana Vasilieva, sales director for Metropolitan Homes’ secondary market, emphasizes the significant influence of mortgage rate changes on property acquisition in the UAE, particularly among individuals intending to occupy the property themselves. She anticipates a substantial increase in potential homeownership opportunities following a projected 1 percent decrease in mortgage rates.
Rachit Pant, CEO of Hedge & Sachs, echoes his peers’ sentiments, stressing the pivotal role of mortgage rates in property acquisition dynamics, affecting both demand and affordability.
RENTERS, END-USERS MAJOR BENEFICIARIES
ValuStrat analysts predict that the anticipated decline in mortgage rates for 2024 may incentivize more buyers to opt for mortgages instead of cash purchases, especially amid Dubai’s escalating rental prices compared to capital values. However, they suggest that cash transactions will likely remain prevalent in Dubai’s real estate market, despite the expected increase in mortgage transactions.
The analysts anticipate a more pronounced impact of interest rates on property transactions in Abu Dhabi, where cash transactions are less dominant than in Dubai.
Renters and end users are positioned as major beneficiaries of the anticipated interest rate decrease in 2024. ValuStrat analysts foresee an inclination among current renters to transition to homeownership, particularly given the faster pace of rent increases compared to capital values.
Vasilieva further predicts that end users seeking ready-to-move-in properties in the Dh1 million to Dh2.5 million price range will form the bulk of buyers looking to capitalize on the drop in mortgage rates.
Youssef anticipates heightened activity among first-time homebuyers with budgets of up to Dh3 million, along with an increase in bulk finance for single-owner buildings.
TRENDS EMERGING IN THE MORTGAGE MARKET
Several emerging trends in the mortgage market include tech-driven innovations such as online mortgage applications, PropTech and AI-powered solutions influencing mortgage decisions, blockchain integration for secure transactions, and Sharia-compliant mortgages catering to the Muslim community.
Additionally, initiatives like first-time buyer programs, sustainable property financing, and the introduction of Real Estate Investment Trusts (REITs) are poised to reshape the market environment, promoting transparency, liquidity, and accessibility in the real estate sector.
