Dubai house-prices are slowing down: End-users….. rejoice!


2022-10-21 01:46:04

Reuters conducted a poll recently to gauge the performance of the Dubai housing market. Home price rises were forecast to slow to 6.5% in 2022 and 3.0% in 2023, down slightly from 7.5% and 4.5% in a May poll, respectively, according to the median forecast of 10 property analysts polled on Aug. 15-Sep. 2. When asked to describe the level of Dubai house prices on a scale of 1 to 10, from extremely cheap to extremely expensive, the median response was 6.  

It is important to see this in the background of interest rate rises. US fed is raising rates on Sep 21. Expect between 0.75% to an outsized 1% rate hike. That will take the rate to 3.25%, or 3.5% in case of a 1% rise. The Fed will continue raising rates and is now expected to peak at 4.45% as against 3.75% forecast a month back. When fed rates were at 0.25%, our average mortgage rate was 2.75%. With current Fed rate of 2.5%, our average mortgage rates have settled at 4.25%. At this rate our mortgage rates are now expected to rise to 5.5%.  

Let us look at the impact this will have on the monthly housing costs. A typical 3-bed townhouse of Dh 2 mln with a 80% ltv loan on a 20-year term. Before the rate rise, the monthly repayment was Dh 8,700. As the rates peak in next two quarters, the monthly repayment of the same mortgage would be Dh 11,000. That is a 26% hike in housing cost. This is why the house price rises are expected to slowdown.