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Middle-income segment set to drive mortgage market

By Dima Hamadeh



Sixty to 70 per cent of mortgages in Dubai are taken by owner-occupiers and analysts have said this number is likely to increase as more people in the middle-income segment look to buy homes.

The mortgage market in Dubai has experienced dramatic growth in the past two years to reach Dh58 billion in 2007, according to the Land Department, with Dh20bn going towards home finance, as opposed to loans to buy commercial property.

The growth in the mortgage market has been accompanied by an increase in the number of owner-occupiers entering the secondary property market.

“Last year saw significant shifts from investors to end-users [owner-occupiers] with many projects completed,” said Homi Gandhi, head of Mortgages and Bancassurance at RAKBank.

Gandhi predicted the home finance sector would remain strong over the next few years as more people choose to move to the UAE to build their careers.

“Given the attractiveness of the UAE as a country to invest in, its stability and the strong economic fundamental drivers, we would expect to see the mortgage business remaining an attractive source of revenue for financial institutions in the future,” he added.

Despite the lack of solid information and figures on the segments of home finance customers, Aref Alharmi, CEO of Amlak, the Islamic home financing firm, said the largest growth will be in the middle-income base of home buyers who will require financing solutions over the next three to five years.

Alharmi said: “With no correction expected in the short run, even a slow down is not bound to affect the middle-range segment’s demand of property .”

Analysts agreed the emirate’s high rents is one of the factors pushing more middle-class residents to become home buyers. The recent five per cent cap on rent announced by the government is proof that rents are only on their way up, said some in the real estate field. As lower-income segments in Dubai look to get into the property market as a result, financing will grow, analysts said.

According to Aemon Al Ashkar, head of Research and Development Advisory at Colliers International, the only buyers who still pay in cash for their property are holiday home purchasers.

“There is no centralised research that shows the segments and profiles of mortgage owners. However, we have conducted an occupancy rate survey in the second quarter of 2007, which revealed that almost 50 per cent of occupied apartments in communities such as the Greens and Dubai Marina are inhabited by owner-occupiers,” Al Ashkar said.

The Colliers Dubai Real Estate Overview noted low and middle-income segments have traditionally been overlooked by financiers but added that things are turning around.

The past two years have seen many new trends in marketing mortgage solutions, both from the developers and lenders.

Easier terms on mortgages, attractive payment schemes, lower interest rates, a higher financing cap reaching 95 per cent and raffle draws and free gifts are an indicator that competition has reached new heights in Dubai’s home finance market.