By: ADMIN |
2022-10-21 01:45:05
Did we break a mortgage record?
In Q1 this year the banks were flooded with mortgage applications. The end-users’ rush to become home-owners was quite evident. A substantial number for mortgage applications were targeted at buy-to-let investments. However the steep rise in interest rates over the last two months seems to have pushed the buy-to-let investors to take a breather.
Here is a scenario - a typical 3-bed townhouse in Dubailand costs Dh 1.9 mln. It will rent for Dh 115k. In Q1 this year, at an interest rate of 3%, monthly repayment on a 80% LTV mortgage with a 20-year term was Dh 8.5k. With a Dh 7k annual service charge the investment was easily breaking even. The rates have risen and are expected to settle at 4.8% range. The same townhouse will have a mortgage repayment of Dh 9.9k. The investment is not breaking-even anymore.
One possible outcome of the rise in interest rates is a rise in the rents. UAE economy seems to be on sound footing - new investments are coming in, oil prices won’t be crashing anytime soon and a raft of new visa-measures will ensure expansion of the workforce. An increase of rents by 10-15% will easily be absorbed. Therefore, as the dust settles on galloping interest-rates, but-to-let investors will start investing again. So expect a bit of a correction this quarter and next, but the current real-estate cycle has quite some way to go still.
