Everyone is talking about Dubai's property market prices being down. The last few years have seen a price reduction - many called it a correction - and industry analysts like S&P suggest the trend will continue downwards until 2020.
There is a lot of conjecture as to why this is. Everyone is offering a variety of opinions. Some talk of oversupply, others a struggling job market, difficult economic times and even lack of demand.
But they are all missing the key point in my mind.
We are seeing anything but a lack of demand. We are busy as ever and registration of new clients is in fact on the rise year on year. This doesn't seem indicative of a declining or struggling market.
While I am not an economist or an expert in the employment market, from what I see, there aren't any overwhelming issues in terms of job availability, salaries or the overall economy.
Our experience has shown us that in a struggling job market and economy, an estate agent such as ourselves will receive a lot of calls from people who need to sell their properties. People might have lost their jobs, or decide to downsize to a smaller (cheaper) home, or simply need to release some funds, for example - but we simply haven't seen these common examples of downturn behaviour here - and certainly not on the large scale some are suggesting.
Oversupply in the market?
As I mentioned above, 'oversupply' is a word we are hearing a lot. I think this has led to a lot of people thinking that it is a much bigger problem than it is. People do have more choice in the market currently, and this is fantastic for buyers and renters, of course. While this does affect the market, it's not doing so to the extent people imagine.
So, we come to the key point as to why house prices have reduced, and it is the mortgage cap.
It's important to note that the mortgage cap was an important introduction at the end of 2013, as the market was threatening to run away with itself.
The wisdom of Dubai and the UAE's leaders meant they acted to put the brakes on the market. The mortgage cap was designed to stop rising prices which would of course have led to a bubble and bust scenario and a lot of instability.
With the mortgage cap in place, a buyer, purchasing a property valued at Dh5 million or less needs approximately a third of the property value in cash.
The breakdown of this is a 20 to 25 per cent deposit for the property, but the rules differ slightly depending on whether you are a local or an expat. An Emirati needs to supply a 20 per cent deposit, while an expat should supply a 25 per cent deposit. This corresponds with maximum bank loans allowed - an 80 per cent loan for an Emirati, 75 per cent for an expat.
Given that Dubai's population has always comprised a majority of foreign workers (some 89 per cent of the city-state's 3.052 million people are not local), expats make up the overriding market.
Charges on transactions
On top of the 25 per cent purchase amount deposit, there's a 4 per cent Dubai Land Department fee, a 2 per cent broker fee and another 1 per cent for other associated fees involved in the purchase. So, that's an initial burden of 32 per cent of the total cost of the property to pay.
Added to that, most people want to at least decorate a property and furnish it when move in. Some will do a lot more.
In short, as an expat property purchaser in Dubai, you need at least a third of the property value available in order to be able to purchase.
Saving that sort of money is tough for most of us - especially when you have daily and monthly living costs to cover.
And that's the issue: there aren't as many transactions happening because only a limited pool of people can afford to buy.
If the mortgage cap was altered, even just for first-time buyers, the market would change.
In summary, a number of factors contribute towards price decline - but what we must not ignore is the simple fact that the upfront costs of purchase preclude many from buying.
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