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real estateNovember 4, 2022

In Dubai, more property buyers sign up for 'developer financing' to offset mortgage loan rate hikes

On ready homes, more buyers are willing to go in for developer financing deals

Dubai: More property buyers in Dubai, especially end-users, are starting to sign up for developer-backed payment deals rather than go for a mortgage as more rate increases come their way.

This means paying monthly instalments directly to developers, especially those who are offering newly completed or ready properties to move into as soon as the signatures on the SPA are put. Developers are offering options of 3-5/6 years for completion of the payments, and indicating to buyers that this would constitute a lesser burden on them.

“For those end-users who are planning to switch from being a tenant to owner, these easy-on-the-pocket schemes from developers would be a huge relief,” said an analyst. “These schemes offer more guarantees as they are fixed throughout the payment tenor. When mortgage rates change nearly every month, end-users are going for the direct-from-developer option.”

Pre-empt more US rate hikes

On Wednesday (November 2), the UAE Central Bank confirmed that it will match the 0.75 per cent increase by the US Fed which is why they have been making some defensive moves to counter the higher payouts on their EMIs.

One tactic that new property buyers have used is to complete the transaction and sign up with a mortgage lender in July/August when it became more certain that the rate increases would be ‘jumbo-sized’. “By September, most of them had brought forward their purchases,” said a banker. “This was reflected in our October mortgage volumes, which showed a significant drop, because it was clear that property owners were worried what further US rate increases would mean.”

Another possibility for end-user buyers is take on a rent-to-own option which is available from a limited number of developers in Dubai...

- Dhiren Gupta, CEO of 4C Mortgage Consultancy

To put the drop in perspective, most banks were reporting month-on-month increases in their mortgage deals right through the first-half.

In October, secondary/ready property sales in Dubai recorded 4,087 transactions, according to Property Finder, the listings portal. This was a ‘significant increase’ of 27.3 per cent year-on-year. Transactions for existing properties saw a 63 per cent increase during the month, reaching Dh14.2 billion compared to Dh8.7 billion in October 2021.

Even in the ready space, developers are ready to support with staggered payment schemes, and which would ensure monthly payments are deemed ‘affordable’ by the buyer. This is why the '1 per cent' schemes turned particularly effective post the series of interest rate hikes. (Some developers have also lined up sub-1 per cent, and this could get more visibility in the months ahead.)

Or sign up with developer

“Developer financing options are readily available,” said Dhiren Gupta, CEO of 4C Mortgage Consultancy. “However, with such financing, the payment is confined to shorter periods (than the 15-25 year tenors on mortgages). Moreover, the property’s price would be relatively higher than the current market value of a similar unit.

“Another possibility for end-user buyers is take on a rent-to-own option which is available from a limited number of developers in Dubai. After paying your initial contribution of 20-30 per cent, you could move in the ready unit with monthly payment and same amount is contributed towards your buying price.

“However, you might have to slightly higher payment towards your home buying experience.”

Need a ready home - now

These few months, offplan sales are running well ahead of that for ready homes. In itself, this too is an indicator that potential end-users may not be entering the property market like they used to.

Because if they are buying to get away from staying in a rented home, they will want to move in now and not two-, three years when the offplan unit is delivered. “At best, these end-users are ready to wait a maximum of 6 months – anything beyond that, they are not interested,” said an estate agent.

“This is why those fortunate developers with newly finished projects are pushing with ready-to-move-in messaging.”