Interest rates remain near historic lows, although the cycle of rate cuts ended early last year.
UAE real estate prices have been falling for nearly 2.5 years, since the highs of the recovery in 2013. Property prices in Dubai have fallen by approximately 30% in most developments across the Emirate. The rental market has not mirrored this trend and has dropped only marginally over the same period. It is very difficult to say exactly when we will reach the bottom of this manufactured market correction. However, we are starting to see the first signs of a “bottoming-out” phase, which should be music to the ears of potential buyers. Before we assess these positive signs of the slowdown in the correction, it is important to understand why prices have fallen by a significant percentage over a prolonged period. There are numerous reasons behind property prices becoming more affordable.
First and foremost the Central Bank’s Mortgage Cap rules have contributed greatly towards the new market environment. Central Bank regulations restricted maximum lending ratios for UAE nationals and expatriate borrowers. Additionally, the banks are no longer permitted to allow buyers to borrow funds to contribute towards deposits (down payments). Most borrowers these days have to find a minimum deposit of 25% and circa 7% to cover fees. Not everyone is fortunate enough to have this kind of money lying around, which has contributed to decreasing numbers of financed buyers and transactions. Fewer buyers equate to reduced demand and this has inevitably impacted property prices. It has been and continues to be a “buyers market”, but how much longer will this last? Interest rates remain near historic lows, although the cycle of rate cuts ended early last year. Indeed, we saw a “spike” in interest rates in 2015. The 3-month Emirates Inter Bank Offered Rate (EIBOR) benchmark rate bottomed out at approximately 0.65% and is now at levels of circa 1.15%.
The trend for property prices to continue adjusting downwards throughout the remainder of 2016 is now under serious question, following a number of positive indicators we have seen recently. Firstly, the main players in the banking and mortgage intermediary sectors are reporting increases in mortgage application submissions, particularly from the start of Q2 2016. Increased mortgage sales are regarded as one of the first indicators of a change in real estate market dynamics. The equation of greater mortgages sales equaling more real estate demand and sales is an easy concept to understand. Home Matters has agreements with 27 banks in the UAE and we can also report that the cost cutting and job redundancies process which most banks undertake in a bear market has started to subside.
Furthermore, some of the banks are increasing staff and mortgage targets with immediate effect. This bodes well for the economy in general. Many real estate companies have seen a sizeable increase in enquiries since start of May, as prospective purchasers search for bargains. Summertime is often seen as a period in the year where the market slows down. This is true for sellers and not so for buyers. When considering a property purchase when is the best time to buy? When the market is full of buyers clambering over the same properties or when there is less competition? Summertime is usually the time of year when we see the greatest movement of population. Expats leave in time for children to relocate to schools abroad, whilst others arrive in time to start UAE schooling. This movement of population triggers motivation to sell and buy, depending on which camp you are in.
To those asking, if it is the right time to buy, I would simply ask the following questions: