To attract end-user purchasers, developers in Dubai are adopting a term they haven’t used in a while: discount. Following the US Fed rate hike on Wednesday, mortgage rates in the UAE increased by another 0.75 percent. Some developers are attempting to soothe end-user fears about their mortgage costs by offering direct reductions.
“These ‘discounts’ are mostly happening in the mid-income space for properties of Dh700,000-Dh1.2 million, because developers do not want to lose out on price-conscious end-users,” said an estate agent. “We see some of this happening with newly completed JVC projects, which is now the place for mid-priced homes, Dubai South, and elsewhere.”
One such offer lists the discount for the buyer at an impressive Dh250,000, and with ‘zero commissions. “These developers are sitting with newly finished homes, and all they need is a buyer to come in,” the source added. “If they hold on to their original pricing, they could soon have competition from others. Or see Dubai’s big developers line up new off-plan projects at aggressive pricing from October onwards.
“There’s always that risk, which is why the discounts are being mentioned. Better for these developers to sell now rather.”
That’s accurate given that Dubai’s real estate market has been doing well so far this year, with freehold location values growing by more than 20% overall. Gains have often been in the 15% range in more cheap places.
That’s accurate given that Dubai’s real estate market has been doing well so far this year, with freehold location values growing by more than 20% overall. Gains have often been in the 15% range in more cheap places.
Mortgage hikes hurt
So far, through the round of mortgage hikes in the UAE, there was a pattern of a slight lull in buying but would then pick up almost immediately. “We have seen the average 5-year fixed rate increase by roughly 1.76 percent since March when the Fed introduced the first rate increase,” said Michael Hunter, CEO of Dubai-based mortgage services portal Holo. “(And) we have seen a trend of banks tightening or capping loan sizes on high-value transactions.”
Banks don’t want to lose out either
But banks cannot afford to take a less visible approach to support home ownership. This is where potential mortgage takers can seize an advantage. “While banks face the dilemma between their bottom line and remaining competitive, we have seen a big increase in rate competition between the banks,” said Hunter. “Bank rates are becoming very similar, and this, in turn, has driven banks to focus on being attractive in other areas such as 0 percent processing fees and waivers of valuation fees.”
Opt for developer incentives
Mortgage rates will rise as a result of additional rate increases by the US Fed. The most painful people will be those who took out mortgages three or four years ago since they would have left the protection of fixed rates for the first term of payments to the lender.
Developers are already waiving fees for new buyers on a variety of services, and if banks pass along their own waivers, such as processing fees and appraisal, it does result in respectable savings for the new buyer.
When it comes to fixed-rate tenors on new loans, they must remember to ask the bank for more. The typical fixed-rate duration is three years, but given the anticipated price increases, banks might be “convinced” to extend this.