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How to buy a UAE property as prices rise and loan caps come into effect

Hatim Najee is still delighted he managed to complete his first property purchase last December.

The 33-year-old bought his Dh3 million apartment in Executive Towers, Dubai, with a deposit of just 15 per cent.

Securing a mortgage has become a little harder for UAE residents these days following the Central Bank’s introduction in October of tighter mortgage limits.

“I couldn’t have afforded the property under the new rules,” says Mr Najee, “and I couldn’t have bought anything cheaper, because that wouldn’t have been big enough for my family and lifestyle. I would have been forced to continue renting until I scraped together a bigger deposit.”

While Mr Najee managed to secure approval for his 85 per cent mortgage just before the new rules came into effect, residents buying today are not so lucky.

Expatriates buying a property for under Dh5 million must now produce a minimum deposit of 25 per cent, rising to 35 per cent for properties above Dh5 million. For second properties, the minimum deposit is 40 per cent.

Emiratis have it slightly easier. But they still need a 20 per cent deposit for homes under Dh5 million, rising to 30 per cent for homes over Dh5 million, and 30 per cent for any subsequent properties. That is fine if you have a fat deposit or plenty of spare equity, but it is an extra hurdle if you have been scrambling to scrape together your deposit before prices spiral even further out of reach.

Even off-plan properties have become harder to acquire, requiring a 50 per cent deposit regardless of whether the buyer is an expat or a national.

After a 53 per cent rise in property transactions last year in Dubai to total Dh236 billion, according to Dubai Land Department figures, bringing with it an average growth in real estate prices of 22 per cent, according to Jones Lang LaSalle, few could argue against the need to calm the nation’s housing market.

However, some experts still question whether a cap on mortgages is the right way to contain price rises. Warren Philliskirk, associate director at Mortgage International Business Dubai, says most people who take out a mortgage in the UAE want to live in the property themselves. “The authorities are targeting the wrong people, most of the market speculation has been driven by cash buyers.”

But the cap is here to stay, so how can first-time buyers get a foot on the ladder?

“If you already have another property, either in the UAE or overseas, you could raise a deposit by releasing some of the spare equity from that, but first-time buyers won’t be in that position,” says Mr Philliskirk.

Alternatively, the mortgage expert says the lucky ones may be able to raise a deposit from their family, also known as “the Bank of Mum and Dad”, while others may have to lower their sights and buy a cheaper home. “My advice is: don’t just give up and do nothing,” adds Mr Philliskirk.

“Property prices should rise by at least another 15 or 20 per cent this year. You won’t be able to save a deposit fast enough, and will only fall even further behind. It may be better to buy a cheaper investment property today. You can get properties for Dh700,000. That will rise in value in line with the wider market and you could put the profit towards your deposit.”

Mr Najee, a Saudi citizen, doesn’t worry that putting down a small deposit leaves him vulnerable to a market correction. “My mortgage allows me to pay down up to 20 per cent of the outstanding debt every year, without penalty. Making overpayments should reduce my debt, and protect me in case prices fall in future.”

Right now, that seems unlikely. Mr Najee says prices for similar properties are rising steadily, and that’s another reason he is grateful to be on the property ladder.

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