- Banks partnering with developers
- Existing payment plans ‘attractive’
- Experts expect muted impact
Developers and banks across the UAE have launched off-plan mortgage options in recent months, but experts are questioning whether the offers will have a meaningful impact on the market.
Banks have announced tie-ups with major developers such as Emaar, Modon, Dubai Holding and Sobha to finance up to 75 percent of a project’s cost and to lengthen payment timelines. All these partnerships were announced after the Iran war began, which has subsequently affected the UAE’s off-plan property sector.
Previously, banks would typically issue mortgages on off-plan homes only after they were already half paid. This was uncommon, with just 1.5 percent of mortgages in Dubai used for under-construction homes, according to brokerage Mortgage Finder.
“We do get the enquiries, but we’re not expecting a major uplift in off-plan, and the reason is that a lot of developers have attractive payment plans,” the company’s sales director, Sam Amidi, told Dubai Eye radio this month. “Those plans probably make more sense than taking a mortgage at this stage.”
These payment plans usually include a deposit of about 10 to 20 percent to secure the unit, 50 to 75 percent paid in instalments during construction, and then the remainder on handover. Most projects stretch over a period of three to four years but, unlike mortgages, have no interest rate applied to payments.
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Another reason these new schemes may not move the needle is because off-plan buyers tend to be “short-term” investors. Protracting payments from a few years to 25 years is not their concern; rather, they want to “flip” the property in a shorter period, and possibly before it is completed.
“There was often a very short-term mindset in Dubai,” said Harry Martin, head of off-plan at Dubai estate agency Betterhomes, referring to the period before the war.
“People would want to come in, make some money and then leave. The market allowed them to do that. People could buy off-plan and double their money very quickly.”
Buyers who mortgage already-built homes, however, tend to be end-users who will hold their asset for longer.
That distinction is shown in wider financing data. Refinancing accounted for approximately 70 percent of all valuation activity in Dubai by the end of the second quarter, up from about 30 percent historically, according to a report by real estate services company Savills.
This is a sign that existing owners are increasingly restructuring their financing rather than selling, consistent with a more end-user, hold-focused mortgage market.
Lenders say one of the main drivers for the scheme is to increase affordability. In the first half of the year, off-plan homes in Dubai cost around AED45,000 more, on average, than ready homes, according to Dubai Land Department information collated by data website DXB Interact. They also tend to be smaller, yet more expensive, with a 24 percent higher price per square foot.
Mohamed Abdelbary, group CEO of Abu Dhabi Islamic Bank, said he hopes the bank can “make homeownership more accessible” with its new mortgages.
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