A growing number of wealthy buyers are entering the Dubai property market with cash purchases as financing is getting more expensive due to rising interest rates.
About 81% of villas and apartments that were sold in the third quarter of the year were paid for with cash, up from 70% in the same period last year, according to real estate consultancy firm ValuStrat.
The value of cash transactions also nearly doubled to AED62 billion ($16.9 billion) from AED35 billion over the same period.
Mortgage registrations, however, have declined 6.9% quarterly and 10.4% annually, representing only 19% of overall ready-property sales in the third quarter of the year, according to Haider Tuaima, Director and Head of Real Estate Research at ValuStrat.
Interest rate hike
Cash deals are common in Dubai’s property market, but rising interest rates may have contributed to the trend. The US Federal Reserve has recently delivered the fourth consecutive interest rate hike of 75 basis points in a bid to stem inflation. This has led to higher borrowing costs for homebuyers.
“Increasing interest rates are expected to shrink the overall market catchment as EMIs (equated monthly instalment) become unaffordable to many potential buyers,” Tuaima told Zawya.
Improved market sentiment, coupled with investor-friendly reforms, may have also encouraged the influx of cash buyers to Dubai’s property market.
“Positive market sentiment and a range of visa reforms including retirement, investment and property linked visas are attracting international investors into the market, resulting in the rise of cash investors,” said Prathyusha Gurrapu, Head of Research and Advisory at Core.
Tuaima, however, noted that mortgage buyers have always been a “minority” in Dubai’s real estate market.
“This fundamentally reflects the demographics of the city. [About] 90% of the population [are] resident expats, many of whom opt to raise capital from overseas rather than commit to long mortgage tenures,” he said.
“Another reason pertains to off-plan options, as many developers set out generous payment plans that stretch beyond handover dates, with no impact from rising interest rates, as opposed to obtaining mortgage options.”
He also noted that while there are fewer mortgage deals, Dubai saw an increase of 41.7% quarterly and 30.7% increase annually in the total value of purchases financed with debt.
Dubai’s property market has been on an upward trend since the easing of COVID-19 restrictions. The surge in demand for property has fueled an increase in property prices, as well as rental values.