Property buyers in the United Arab Emirates, especially end-users, will increasingly go for mortgages in 2024 because interest rates are expected to decline by almost 100 basis points.
According to real estate analysts, the buyers approach depends a great deal on the changes in interest rates as far as purchasing property in the UAE is concerned.
The UAE has seen a continuous rise in rentals and this could prompt renters to take advantage of the reduced interest rates to become property buyers in 2024.
ValuStart disclosed that majority of the transactions in Dubai are made up of cash buyers. The total number of mortgage transactions in Dubai’s real estate market in the third quarter of 2023 was 8,238.
Meanwhile, cash deals, which do not include off-plan transactions, were around 16,485. In comparison, a different scenario is evident in Abu Dhabi.
This is because in Abu Dhabi’s property market, mortgage transactions seem to be a more significant factor.
In the same period, the total number of cash transactions in Abu Dhabi, excluding off-plan transactions, were around 890, while mortgage transactions were 1,247.
Most economists and bankers expect the US Federal Reserve to reduce interest rates in 2024 by 25 to 100 basis points after hiking them up for 11 times in a row.
The Fed’s monetary policy is followed by the UAE because the dirham is pegged to the US dollar.
According to experts, lower interest rates give demand a boost and this can drive up home sales, while higher rates hurt affordability and this slows down the market.
But, higher interest rates only had limited impact in Dubai because almost half of the transactions in the market are off-plan sales.
This means that investors usually take advantage of the payment plans that developers offer. But, there is no denying that changes in mortgage rates have a significant impact on property purchases in the UAE.
This is especially applicable in the case where people are purchasing properties for moving in. If the mortgage rate does reduce by 1%, it would boost the pool of potential homeowners.
Once affordability is improved, it will attract end users who had previously considered the market less accessible.
This decrease could also provide investors the opportunity to borrow at reduced costs for short-term investments in other options that can generate a higher yield.
Mortgage rates play a key role in the dynamics of property acquisition because they have an impact on demand as well as affordability.
The affordability of properties is reduced when mortgage rates are elevated because they correspond directly to the monthly payments.
Therefore, buyers are often driven to consider less preferable or smaller locations. Furthermore, if rates increase, the maximum loan amount that buyers qualify for also reduces.
This can make it difficult for certain buyers, especially those with smaller down payments, or lower incomes.
If mortgage rates are reduced in 2024, it could see an increase in the number of buyers switching to mortgage over cash purchases.