.
Dubai real estate market will remain unfazed with the persistent increase in interest rates, and it will continue an upward trend but at steady pace on rising demand, experts say.
Analysts, real estate executives, property developers and market insiders said rising interest rates will have no major impact on the property sector as mortgage transactions represent only a quarter of overall home sales. However, they warned that the hike may impact the future demand and slow the growth rate of the market.
“There’s no doubt that higher costs of borrowing negatively impacts the real estate market. For Dubai however, that impact is not expected to be severe, as mortgage transactions represent only a quarter of overall home sales,” Haider Tuaima, director and head of Real Estate Research at ValuStrat, told Khaleej Times.
Last week, the Federal Reserve raised benchmark interest rates by another three-quarters of a percentage point third time in a row and indicated that it will keep hiking well above the current level.
The US central bank has been looking to bring down inflation, which is running near its highest levels since the early 1980s. It increased federal funds rates up to a range of 3 per cent to 3.25 per cent, the highest since early 2008.
Fed officials signalled the intention of continuing to hike until the funds level hits a ‘terminal rate’, or end point, of 4.6 per cent in 2023. That implies a quarter-point rate rise next year, but no decreases.
Nominal impact on monthly EMIs
Ata Shobeiry, chief executive at Zoom Property, said the hike in interest rate is in line with the international market as the central banks worldwide had no choice but to increase the policy rates to tame inflation.
“The increased interest rate will certainly impact the market. However, it’s too early to estimate the extent of the impact,” Shobeiry told Khaleej Times.
Robert Thomas, head of agency at real estate consultancy Core, said impact of interest rate hike on real etate sector will be nominal.
“As the interest rate hikes are from a very low base and are still relatively low compared to historical values, the impact is yet to be strongly felt. For example, 100 base points, or one per cent, increase in interest rates on a mortgage for an Dh1 million property on a 25-year loan term increases monthly mortgage payments by Dh430. Similarly, a 100-base point increase on an Dh5 million property increases the monthly mortgage by Dh2,140,” Thomas told Khaleej Times.
He said it may spur people to transact, as with rising rents people are taking a long-term view and buying instead of facing high rental rates. “Many buyers are locking in fixed interest rates to avoid potential interest rate hikes. That said, further interest rate hikes coupled with rising inflation are expected to impact disposal incomes and real estate investment potential for mid-income end-users,” he said.
Investors’ buying behaviour
Yousuf Fakhruddin, CEO, Fakhruddin Properties, said the recent rise in interest rates may affect the investors’ buying behaviour in the market. “Even though higher interest rates may affect the market in terms of demand and prices, it also gives us an opportunity to offer our buyers more attractive payment plans,” he said.
“For example, we offer a post-handover purchase plan with a ‘pay one per cent interest’ payment scheme. This gives our buyers the opportunity to explore our plan and take advantage of its lucrative benefits. With this plan, investors can avoid the hassle of changing rates and enjoy greater peace of mind. In the end, it all depends on the market conditions and the buyer’s affordability. We are confident that the real estate sector in UAE will continue to grow despite these challenges,” Fakhruddin told Khaleej Times.
ALSO READ:
- UAE: Prices of food, groceries to drop by 20%; here's why
- Time to buy: Gold prices drop further in UAE
- UAE: 67% of firms asked by employees to raise salaries
Investors well prepared
Srijan Katyal, global head of strategy and trading services at ADSS, said investors have been well braced for the Fed’s third consecutive 75-basis point hike, as seen by the decade-high yields for US Treasury bonds.
“As the Fed continues to tackle record levels of inflation, investors will likely continue offloading stocks given their fears that the aggressive interest rate policy will go too far and tip the economy into a recession. This will be compounded by the geopolitical situation getting worse as Putin announced a partial military mobilisation.”
He said the dollar may continue to strengthen as it reached its 20-year peak while pressure on UK and European currencies mounts.
“Traders will need to look out for gold as markets anticipate a recession alongside the growing uncertainty between the East and the West,” Katyal said.
