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01 March 2024

UAE has largest rental market in Mena

Villas on Jumeirah Island. Nearly 45 per cent of UAE's housing units are rented. (EB FILE)

By Nadim Kawach

The UAE has the largest rental market in the Middle East and North Africa as nearly 45 per cent of its total housing units are rented, according to the International Monetary Fund (IMF),

The UAE has one of the most developed mortgage markets in the region, offering a range of products, financing units, tax benefits for ownership and fixed interest rates, the Washington-based IMF said in a working paper.

The paper divided the housing market in the world into three categories – home ownership, rental and social housing. Its figures showed about 65 per cent of the population, on average, lived in self-owned houses in the Organisation of Economic Co-operation and Development countries between 1995 and 2007. In Mena and Central Asia, this level varies from 38 per cent in Egypt to about 80 per cent in Syria and Tunisia, with nine nations having a share larger than 50 per cent and an average of 64 per cent.

"For the other two housing market categories – rental and social or subsidised housing – there is a relatively larger fraction of rentals in most countries. An outlier is the UAE, where the share of the rental market is as high as 45 per cent due to the large share of expatriate workers," said the IMF paper.

By mid-2009, the UAE's expatriate population stood at about 4.14 million, accounting for over 81 per cent of the total population of 5.06 million, according to the Ministry of Economy. Nationals estimated at about 923,000.

The UAE had barred foreigners from owning houses before it partly opened up the sector years ago. Dubai has spearheaded that drive, which resulted in an upsurge in the property sector in 2007 and 2008 before it started to slow down following the eruption of the global fiscal distress in September 2008.

"The UAE, Kuwait and Morocco have the most developed mortgage markets in the region," it said.

"They offer a wide range of primary mortgage products, such as penalty-free refinancing, tax benefits for ownership, second mortgages on favourable terms, clear underwriting requirement, a wide range of lenders, and fixed interest rate mortgage products. The second tier is Bahrain and Saudi, which is less developed in terms of having lower LTV ratios, less securitisation, and less flexibility in lending. Particular to Saudi is the dominance of Shariah compliant mortgage market instruments."

Real estate mortgage loans had dominated the UAE banks' credit operations in 2007 and most of 2008 before the crisis brought a turnaround in the booming construction sector in the UAE and other Gulf oil producers.

Figures by the Central Bank showed mortgage loans provided by the country's 24 national banks and 28 foreign units increased by only around Dh12bn in H1 2009 compared with Dh44bn in H1 2008. For the whole 2008, mortgage loans totalled nearly Dh69bn, the highest level of real estate credits extended by the UAE banks over the past two decades.

From about Dh125.8bn at the end of 2008, realty mortgage loans rose to only Dh137.2bn at end-June. They had jumped from about Dh56.4bn at end-2007, the Central Bank said in a report.

Estimates by the Ministry of Economy showed investments in realty and construction sectors in the UAE exceeded Dh140bn during 2004-2008. The gross fixed capital formation in the sector hit a record Dh47bn in 2008, a rise of nearly 42 per cent over the previous year.

The investment in realty and construction in 2008 surpassed capital pumped into the oil and gas sector and accounted for 23 per cent of the total gross fixed capital formation of Dh200.4bn in 2008.


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