Homebuyers benefit as UAE mortgage lenders lower key requirements for off-the-plan projects

DUBAI: New off-the-plan buyers in the UAE are starting to secure mortgages faster than in the past after lenders gradually eased requirements on project construction levels.

Where earlier banks would only lend when a project reached the 80% mark, today they are willing to lend at 50% and above.

Doing so will unlock prospects for the entire UAE real estate market, which is witnessing an influx of new buyers, both residents and overseas. Even among resident buyers, many of whom are newcomers to the UAE, early mortgage approval takes longer.

Industry sources say banks are aware of the need to keep funds available, especially as the Dubai real estate market increasingly relies on off-the-plan properties to meet demand.

Even after 10 rounds of rate hikes by the Federal Reserve, coordinated by the UAE’s banking regulator, the need remains urgent. (This week, the Fed likely won’t raise rates again.)

“Nowadays, there are lenders willing to give residents 75 percent of the value of the loan once the off-plan project exceeds 50 percent,” said Shreen Gupta, chief executive and partner at Dubai-based Grid Properties. GII, a Dubai-based investment firm, is building a sizable portfolio of real estate developments in Dubai. (Grid has two more projects in London, including an alliance with fashion brand Elie Saab that has already been completed.)

“For non-resident investors, LTV funding is 50% of the property value. Importantly, mortgage lenders no longer wait until the project is near completion to make payments.”

While purchases by overseas investors of AED10 million properties are usually done in all cash, a growing number of new residents and first-time overseas buyers in the UAE are more interested in properties priced below AED5 million. And I’d prefer some form of developer financing backing or having a mortgage to pay it off.

Additionally, asking prices in Dubai continue to climb, 20-30% above levels seen in mid to late 2021. As a result, potential buyers will have to pay a higher down payment out of their own money, which could land them in a bind once the installment schedule kicks in. So it would be convenient for any mortgage funding to be in place when the project is 50% complete.

According to Gupta, “Most developers are committed to getting 50% of the property value during the construction and handover phase. There are developers who offer 1% monthly installment plans, but considering that all other upfront payments are still required, through it you can do Things are limited.”

These additional costs include the 4% registration fee with the Dubai Land Department, the deposit required to obtain utility connections, etc. All told, this means about 30% of the value of the property goes straight out.

Other sources in the property market also cited banks’ “more generous” lending norms for off-the-plan purchases. Currently, the proportion of off-the-plan sales in Dubai is 50-55%, and it may even be higher.

“Reducing the project completion limit for mortgage loans from 80% is one of the best ways to maintain the prosperity of the real estate market in Dubai,” said a real estate agent. “This will benefit those who have bought a house worth between Dh1 million and Dh3 million and want to take out a mortgage to cover most of their commitments.”