Price rises of luxury property in Dubai have slowed to a standstill due to a mortgage gap introduced to cool the overheating market.
During the first half of 2014, prices rose by just 1% as mortgage controls took a grip, according to international property firm Knight Frank.
However, prices are expected to start rising again as sellers adjust their prices as the market has a shortage of luxury apartments and villas.
Research by the firm disclosed the mortgage cap and raising title transfer fees both contributed to the sluggish market.
The mortgage cap demands expats buying homes in Dubai have to pay far larger deposits to secure a property and are discouraging speculative investments.
Mortgage cap
The cap also applies to United Arab Emirates nationals – but is set at a lower loan-to-value than that for expats.
Expo 2020 coming to Dubai has also led to some sellers placing unrealistic prices on their properties, said the firm’s Victoria Garett.
“Some sellers are putting prices on their homes that are far higher than the market value and are stubbornly refusing to negotiate a more reasonable selling price,” she said. “As a result, buyers are holding back or looking elsewhere.”
The survey also revealed the number of luxury properties changing hands has decreased as well.
The figures suggest sales are 10% lower than in the last three months of 2013 and nearly 30% on the first quarter of last year.
“These figures are not too much of a shock,” said Garett. “Between a quarter and a third of all prime property buyers take out a mortgage. As they are capped and harder to come by, the number of sales has dropped.”
Short term market problems
The firm does expect sales to rally as local banks relax mortgage lending rules and developers released more luxury properties on to the market.
“The central bank has indicated borrowing rules will slacken off soon,” said Garett.
“Many more luxury homes are scheduled to be built over the next few months that will mean supply also eases. Both these moves are likely to affect the prices of prime property in Dubai.
“The economy is also growing rapidly, which will stimulate the property market in due course as well.”
Meanwhile, a recent report from the International Monetary Fund warned the UAE government to take action to stem property price rises to discourage speculators accessing the market.
