Dubai Villa Sales Surge as Bank Lending Gains: Mortgages

Nakheel Plans First New Palm Island Project Since Crash
Nakheel will build shops, computer-controlled fountains and a public walk on the tip of the palm-shaped island, Chairman Ali Rashed Lootah said at a press conference today. Source: Nakheel via Bloomberg

Jean-Luc Desbois, a Dubai mortgage consultant, has increased his sales force by 40 percent this year as low interest rates and depressed prices help the desert sheikhdom emerge from a three-year property slump.

“January was our best month ever,” said Desbois, who started his Home Matters company in 2006, two years before the real estate market collapsed. “Eighty-five percent of our business is for villas and we expect this strong demand to continue this year.”

Mortgage lending for all Dubai properties jumped by 59 percent to 5.95 billion dirhams ($1.62 billion) from a year earlier, according to data from the emirate’s Land Department. Last year, transactions for land, offices and residential properties gained 12 percent to 86 billion dirhams, with about 20 percent involving homes.

Dubai’s housing market is hitting bottom after a boom led by speculators collapsed in 2008, and villas are now attracting more interest from buyers who plan to live in them. Home sales increased 67 percent by value in the fourth quarter from a year earlier to 2.85 billion dirhams, Land Department data show. The number of homes sold rose 72 percent to 2,605 units, after a 64 percent gain in the fourth quarter from the third.

“More people are looking to buy property now and more of them are end users,” said Sam Wani, general manager of Dubai-based mortgage brokerage Independent Finance. “Interest rates are at record lows, banks are now offering fixed-rate mortgages and property prices appear to have bottomed out.”

Market Opening

The boom started after Dubai opened the property market to foreign buyers in 2002, and at its height was driven by cash buyers and speculators who profited from purchasing and selling contracts for yet-to-be-built houses and apartments. Prices fell more than 60 percent over the next three years, keeping buyers and lenders on the sidelines as they waited for the market to hit bottom.

Villas in Dubai’s more expensive developments are proving more attractive to buyers than apartments.

“With limited availability of premier villa products, we can expect this strong demand to continue through 2012,” said Matthew Green, head of United Arab Emirates research at broker CB Richard Ellis Group Inc. “The top end has actually been less impacted by the downturn, with investment remaining focused on the more established lifestyle communities.”

Price Gains

The average asking price for three-bedroom villas rose by 5 percent on Nakheel PJSC’s Palm Jumeirah, 8 percent at Emaar PJSC’s Arabian Ranches and 1 percent at its The Springs development last year, property broker Jones Lang LaSalle Inc. Apartment prices fell 9 percent over the year, it said.

Nakheel plans to build townhouses on the palm-shaped island in its first new housing project since the property slump, Chairman Ali Rashed Lootah said in an interview last month.

The Betterhomes real estate agency opened a sales kiosk in the Arabian Ranches community center at the beginning of last year. Rene D’Souza, a real-estate agent for the company, said visitors have increased and the type of buyer is changing.

He said Arabian Ranches selling prices have risen this year to 950 to 1,200 dirhams per square foot, from 850 to 900 dirhams a year ago. The average selling price for a small three-bedroom villa in the development is now about 1.85 million dirhams, or about $500,000, compared with 1.5 million a year ago. Rents are about 135,000 dirhams, compared with 120,000 a year ago.

End Users

“There was still a lot of interest during the difficult times, but there was a lot of panic selling and investors were looking to pick up bargains,” he said. “Now there’s more interest from end users. Banks are lending again and there’s a buzz going around.”

Craig Plumb, head of research in the Middle East and Africa for Jones Lang, said the villa market has performed better than apartments over the past six months after falling prices made them more affordable.

Mortgage transactions, which totalled 3.39 billion dirhams in the fourth quarter of 2008, fell to 2.7 billion dirhams by the fourth quarter of the following year, according to, a research firm that tracks Dubai’s property market. The value rose to 2.9 billion dirhams in the last three months of 2011.

The rise in lending is fuelled by more renters in Dubai deciding to purchase homes and by customers switching banks to refinance at lower rates, said Venkatesh Srikantan, head of personal banking at the U.A.E. unit of Barclays Plc.

Mortgage Price War

Banks have cut lending rates to attract buyers amid signs that home prices are bottoming out. Barclays is offering some of the lowest rates in the U.A.E at 4.15 percent to 7.5 percent. Standard Chartered Plc’s mortgages start at 4.49 percent. HSBC Bank Middle East Ltd., the Dubai-based unit of HSBC Holdings Plc, Europe’s biggest bank, cut rates to as low as 5.49 percent from a high of 9.5 percent in 2009.

“In early 2009, only three to four banks were providing mortgages, whereas now there are over 25 banks in the market with a good appetite to lend,” said Desbois of Home Matters. “Mortgage inquiries in January 2009 were virtually non-existent, while this year we had more than 300 enquiries in January.”

Overall, lending in Dubai is showing signs of recovery. The three-month Emirates interbank offered rate, the level at which banks in the U.A.E. lend to each other, dropped 31 percent, or 66 basis points, since the beginning April, to 1.47 percent on Aug. 8, the lowest since Bloomberg began collecting the data in September 2006. It has since risen 7 basis points to 1.54 percent on March 20. The rate reached 4.79 percent in October 2008 after the collapse of Lehman Brother Holdings Inc. triggered the worst economic slump since the Great Depression.

Lower Risk

“Banks see mortgages as a lower-risk asset -- mainly because property prices have corrected so much -- and are willing to cut rates to attract business,” said Shabbir Malik, a Dubai-based analyst at investment bank EFG-Hermes Holding SAE. “Competition amongst banks is high because a lot are offering mortgage products and the market is still small, even after improving from a year ago.”

One-year interbank interest rates were at 1.98 percent in the U.A.E., compared with 1.05 percent in Saudi Arabia, according to data compiled by Bloomberg.

In the U.S., the average rate on a 30-year fixed mortgage rose to 3.92 percent in the week through March 15 from 3.88 percent, Freddie Mac, the McLean, Virginia-based mortgage-finance company said in a statement.

Foreign Lenders

International lenders are looking to capture market share from Dubai mortgage providers such as Tamweel PJSC and Amlak PJSC, which supplied almost 90 percent of all mortgages in the U.A.E. as of mid-2008. Both companies halted lending in October 2008 after the property market collapsed.

Tamweel resumed lending in November and now offers a 25-year, 80 percent Islamic mortgage at 5.25 percent profit rate to buyers in selected areas.

Dubai’s developers are delivering thousands of new homes to the market every year as they complete developments and fulfil contracts signed before the market crashed. That and a lack of lending have kept prices from recovering even after some markets around the world have rebounded from the credit crisis.

About 13,000 residential units were completed in Dubai last year, bringing the total to 336,000, Jones Lang said in a January report. Almost 90 percent of the completions were apartments. Although 38,000 units are scheduled due to be completed this year, Jones Lang estimates the total will be about 60 percent of that.

Desbois of Home Matters said the last quarter of 2011 was his company’s best. Besides low lending rates, cash buyers are also helping the market, he said.

“There are a lot of buyers from Afghanistan, as there’s concern about U.S. and British troops pulling out,” he said. “They’re mainly cash buyers, but once there are more buyers in the market, this naturally encourages others and pushes the prices up. We’re not going to get back to boom times, but there is strong demand.”

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