Banks in the UAE have eased their requirements for mortgage approvals on off-plan properties, allowing buyers faster access to financing. Previously, lenders would only grant loans once a project reached 80 percent completion, but now they are willing to provide mortgages when the project reaches the 50 percent or higher stage. This change is expected to have a positive impact on the UAE property market, benefiting both residents and international investors. It is especially advantageous for newcomers to the UAE who previously faced challenges in obtaining mortgage approvals.
Buyers of off-plan properties in the UAE now have faster access to mortgages compared to previous times, thanks to lenders easing their requirements regarding project construction progress. Previously, banks would only provide loans when a project had reached 80 percent completion. However, nowadays, they are willing to grant mortgages when the project has reached the 50 percent or higher stage.
This change is expected to have a positive impact on the overall UAE property market, as there is a growing number of new buyers among both residents and international investors. It is particularly beneficial for newcomers to the UAE who previously faced challenges in obtaining mortgage approvals.
Banks in the industry understand the importance of maintaining accessible funding, especially as the Dubai property market increasingly relies on off-plan launches to meet rising demand. Despite the US Federal Reserve implementing 10 successive interest rate increases, which were also mirrored by the banking regulator in the UAE, the demand for funding remains significant. It is worth noting that an additional interest rate hike from the Federal Reserve is unlikely this week.
According to Shreen Gupta, CEO and Partner at Grid Properties, a Dubai-based investment firm affiliated with GII, there are lenders currently offering residents loans up to 75 percent of the property's value once the off-plan project surpasses the 50 percent completion milestone. Grid Properties is actively working on developing a substantial property portfolio in Dubai.
While properties worth Dh10 million purchased by overseas investors typically involve full cash payments, there is a growing group of new residents and first-time overseas buyers in the UAE who are more interested in properties priced below Dh5 million. These buyers prefer some form of financing support from developers or would like to have mortgages to repay.
Moreover, property prices in Dubai have consistently risen, experiencing a 20-30 percent increase from mid- to late-2021 levels. As a result, prospective buyers will need to provide a higher down payment using their own funds, which may put them in a difficult financial situation once installment payments begin. Therefore, having access to mortgage funding when a project reaches 50 percent completion will prove to be quite beneficial.
Developers generally aim to receive 50 percent of the property's value during the construction and handover phase. Although some developers offer monthly installment schemes of 1 percent, there are limitations to its effectiveness due to various upfront payments that are still required. These additional costs include expenses like the 4 percent registration charges with the Dubai Land Department and the deposits required for utility connections, among others. When considering all these expenses together, it amounts to approximately 30 percent of the property's value being paid upfront.
Additional sources within the real estate market have also noted the "more lenient" lending criteria implemented by banks for off-plan property purchases. Currently, the proportion of off-plan sales compared to completed properties stands at around 50-55 percent in Dubai and has the potential to increase further.
According to an estate agent, reducing the requirement for project completion from 80 percent to qualify for mortgages is one of the most effective methods to sustain the booming Dubai property market. This change will particularly benefit individuals who have purchased homes valued between Dh1 million and Dh3 million, as they rely on mortgages to fulfill a significant portion of their financial obligations.
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