Cash buyers buoy UAE real estate market
Foreign cash buyers continue to buoy the UAE real estate market, and transaction volumes do not yet show signs of slowdown despite a 22 per cent surge in Dubai residential property prices in 2013, Arqaam Capital said in a report on Saturday.
However, the price escalation, which is four times the annual salary hikes, means that the UAE property is slowly approaching affordability limit: a 20 per cent rise in prime prices takes 15-20 per cent of addressable population out of pocket, Arqaam report said.
“We estimate that six out of 10 residential transactions being concluded today involve cash rather than home finance, and that five out of ten transactions involve foreign buyers. We find that much of the year to date price appreciation in prime apartment units is a function of foreign interest in UAE residential assets, due to perceived appeal in terms of capital preservation and yields,” analysts at Arqaam said.
They argued that this price surge has had the effect of pricing out a portion of the resident population interested in home ownership, but will also continue to absorb supply in 2014. However, a retracement in foreign demand will likely spur some slowdown in price evolution by 2015, the report said.
According to Arqaam, the UAE is the only country in the GCC that produced marginally higher average pay increases in 2013 (+5.3 per cent) vs 2012 (+5.2 per cent). “This in our view should continue to support consumer spending in the UAE, which is expected to grow to Dh766 billion in 2014 from Dh716 billion in 2013, up seven per cent year on year, and generally allow for continued access to mortgage financing. In 2013, mortgage financing rose by seven per cent to Dh270 billion.”
Residential property prices surged 22 per cent in Dubai, which is four times the average price increase in 2013. High-end apartments are currently selling at Dh1,850 per square foot, 40 per cent above mid-end apartments (Dh1,315/sqft), while low-end units are offered at Dh825/sqft in Dubai. “Given new mortgage limits and price trends, the UAE property now prices 17 per cent of population out of buying homes. Excluding UAE nationals, the recent 20 per cent upswing in prime prices has priced 17 per cent of the expatriate population (lower-income expatriates within addressable buyer pool) out of buying homes, and a further 16 per cent (mid-income residents with average annual salary of $100,000) at risk of no longer affording mortgage financing,” said the report.
“Our estimates on salaries in Dubai show that 61 per cent of employed expatriates (17 per cent of addressable population) currently cannot afford to buy any type of apartments on mortgage, while 32 per cent of addressable population can secure mortgage financing on low and mid-end apartments, and 51 per cent of addressable population (22 per cent of total employed expatriates) can afford to buy all available types of units,” the analysts said.