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24 Gulf Property

The real estate marketin Dubai has beenslowing down sincethe past few months.Sales volumes have

gone down, while rentals areon the rise. Although certain

locations in Dubai have wit-nessed healthy demand forresidential units, the marketoverall has remained calmsince the start of 2015.

Some experts havecheered this trend as a signof the market’s maturity andopined that periodic correc-tions are only welcome asthey prevent the market fromoverheating. Yet there areothers who are concerned

about the supply for residen-tial units, especially in thehigh-end areas of Dubai, out-stripping demand. Theyseem equally concerned bythe unchecked growth ofrental rates across Dubai,which have forced people tomigrate to other emirates.

The real estate market’sbehaviour has a direct im-pact on the mortgage mar-ket, with banks keenly

watching the sector’s trends.In such a tight scenario,when transactions havegone down and people areborrowing less, banks whohave simple yet attractiveloan schemes are the oneswho will stand to gain. Notjust banks, but also NBFCs,whose core business is toprofit from lending money,will have to come out withconvenient schemes.

UAE mortgage market:Competition heats up

Gulf PropertyExclusive

UAE mortgage market:Competition heats up

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Gulf Property 25

units. All projects generatedsignificant demand with allinventory released beingsold, and the expectation ofnew projects being launchedduring 2015.

Residential apartment val-ues within the designated In-vestment Areasdemonstrated strong capitalappreciation during 2014.MPM Propertiesresearch

s h o w scapital valuegrowth ranging from 11% to35% with an overall averageincrease of 21.6%. Villa val-ues also experienced stronggrowth ranging from 5% to30%, with an overall averageincrease of 15%.

In Q4 2014 the residentialsales market witnessed amarked slowdown in transac-

tions due to the widening gapbetween asking and offerprices, with sale prices show-ing no increases in the last 3to 4 months. Data analysedby MPM shows that salesvolumes during Novemberand December of 2014 wereat a 20 month low, impactedby the lower Loan-to-Value(LTV) ratio introduced by the

UAE Central Bank,to check

t h e

mortgagemarket.

The Abu Dhabi market con-tinues to be dominated by in-dividual investors, with saleprices increasing faster thanrents, eroding yields whichhave dampened investor de-mand. This trend will con-tinue until sellers agree onlower prices or rents rise tohelp investors achieve net

For understanding how themortgage market reacts tovariations in the real estatesector, it is interesting toknow what the scenario is inthe two crucial property mar-kets of the UAE: Abu Dhabiand Dubai.

Demand risesin Abu DhabiThe latest quarterly report is-sued by the real estate con-sultancy arm of Abu DhabiIslamic Bank (ADIB) -MPM Properties -highlights valuegrowth across allsectors of AbuDhabi’s realestate mar-ket during2014. Gov-e r n m e n tinitiativesto stimu-late jobg r o w t hand en-h a n c em a r k e ts e n t i -ment, fu-elled inpart by aknock oneffect fromDubai’s Expo2020 win, pro-vided healthy de-mand across allasset classes.

During the year theAbu Dhabi residential sec-tor saw the launch of the firstoff-plan projects for over 6years, with major propertydeveloper Aldar launchingthree projects (Hadeel,Ansam & Nareel) totallingapproximately Dh5 billion,and comprising over 900units. Tourism Developmentand Investment Company(TDIC) launched its first res-idential development withinthe Cultural District (MamshaAl Saadiyat) comprising 461

yields within a range of 5.5%to 6%.

Meanwhile the residentialleasing market saw signifi-cant activity during thecourse of 2014 following theremoval of the rent cap inNovember 2013. Despiteconcerns of potentially hugerental increases, MPM datashows that the market is self-regulating with normal mar-ket forces of supply anddemand allowing rental ratesto be negotiated and fixed.This is healthy for the long-

term growth of the sector.In terms of the ADIBRental Index, an in-

crease of between0% to 5% contin-

ued to be thecommon trendin Q4 2014.During thefourth quar-ter Zones A,B and Cwitnesseda v e r a g er e n t a lgrowth of7.5% to10% asresidential

units withwater views

or access tofacilities and

amenities withinthese zones were

in high demand . “The current market

is effectively a three-tiermarket,” said Paul Mais-

field, MPM chief executive.“The mid-tier properties,which takes up most of ourportfolio, are seeing a stabil-ity in rents with an average5% increase, reflecting thefact there is a ready supply ofsuch properties and thuslandlords are mindful not topush rents too high and riskoccupancy levels falling.”

“At the top end of the resi-dential market there is ashortage in supply, and occu-pancy levels are high within

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26 Gulf Property

the most popular develop-ments and communities, andwith the limited choice ten-ants now have rental in-creases of 15 to 20 % arecommon at lease renewal,”Maisfield stated.

“At the bottom end of themarket with the older proper-ties there is also a shortageof supply which is pushing uprents and in percentageterms these have been hitthe hardest” he added.

The key new projectslaunched during Q4 2014were Yas Mall (retail), BurjMohammed Bin RashidTower (residential) andCourtyard by Marriott hotel(hospitality). In 2015 multi-ple other residentialand commercialprojects aree x -

pectedto becompletedon Al ReemIsland, Cor-niche, DanetAbu Dhabi andCapital Center.

MPM Propertiesexpects the real es-tate market to continueto grow steadily during2015 with anticipation thatthe market will witness theintroduction of new real es-tate regulations. The launchof the Abu Dhabi Global Mar-ket Financial Free-zone; TheLouvre Museum and the on-going infrastructure develop-ments will help fuel demandfor the residential and officesectors and support contin-ued growth across the retailand hospitality sectors.

Housing rentssurge in DubaiThe residential segment has

experienced a period of rela-tive stability during H2 2014,with rental rates remainingbroadly flat. Over the courseof the year, modest growth ofaround 7% was recorded,compared with 24% during2013, according to globalproperty consulting firmCBRE’s year-end market up-date. Over 20,000 new unitsare expected to enter themarket during the course ofthe next 12 months whichcould have a deflation-ary impact onsales andr e n t a l

rates.“Over the

past 12 months thesales segment has com-prehensively outperformedthe rental market, recordingan 18% growth year-on-yearas compared to 30% in 2013.This disconnect is high-lighted as a potential area ofconcern for the market, withmounting pressures on rentalyields as a result. However,despite the slowdown, themarket continues to see

strong occupier and invest-ment demand for well lo-cated, good qualityresidential apartment build-ings, a fact backed up by re-cent transaction numbers inthe established communitylocations,” saidMatthew Green,Head of Re-s e a r c ha n d

C o n -s u l t a n c y

UAE, CBREMiddle East.

“Over the course of theyear, the residential markethas progressively slowedwith transaction volumes welldown on 2013 performance.Whilst values have grownsteadily during the period,the growth is just a fraction ofthe 30% growth achievedlast year. A similar story hasalso been evident in the res-idential leasing market,wherein rentals suffered afirst quarterly decline sincethe last downturn in 2008,”Green stated.

Despite a rise in new stockand high vacancy ratios, of-

fice lease rates have surgedacross the prime and sec-ondary locations. Solid eco-nomic growth and improvedbusiness confidence haspaved the way for the entryof new SMEs, while existingfirms are solidifying by wayof expansion/consolidation,culminating in a strengthen-ing of lease rates. Singleheld quality office assetsacross prime and secondary

areas have benefitted themost, recording rising

lease and occupancyrates.

“Overall, we ex-pect the scheduled

pipeline of officesto help con-

strain rentalinflation and

add morebalance

to them a r -

k e t

in thec o m i n g

quarters. As ofend of 2014, the total

office stock stands atclose to 8.1 million squaremetres rising from 7.7 millionsquare metres as of the endof 2013. This reflects an ad-dition of 0.4 million squaremetres and an increase of6% year on year,” Greenelaborates.

According to the CBRE an-nual market update, the retailsector remained buoyantduring the year, with majorretail centres recording occu-pancy rates of over 95% andwith strengthening leaserates.

“Whist all sectors have per-formed well, perhaps two ofthe most promising havebeen the retail and hospitalitysectors which have seen ris-ing demand amidst increas-ing visitors to the emirate,”further added Green.

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anchored with large-scaleleisure attractions, with en-tertainment forming an in-creasingly important part ofthe retail mix,” commentedGreen.

Rising tourist numbersalong with planned festiveactivities should see anotherstrong year for the retail sec-tor. However, with no newmajor retail space expectedto enter in 2015, thequandary of retailers is likelyto continue. With strong fun-damentals, the sector is ex-pected to see further growthwith addition of new retailbrands waiting to enter themarket.

By the end of 2017, over27,000 new hotel keys andhotel apartments could bedelivered, adding capacityfor close to 10.0 million roomnights a year to Dubai’s an-nual room inventory.

Whilst 2015 is set to see

significant new supply withover 5,500 new hotel keys,2016 and 2017 are the realgrowth years with close to15,000 new hotel keys inthese two years alone. Overthe next 12 months there willalso be 1,500 new hotelskeys delivered in the DubaiMarina, Jumeirah BeachResidences (JBR), JumeirahBeach and Palm Jumeirahsub-markets, although themain focus of supply in theshort term is very much busi-ness focused.

Commenting on the out-look for the market, Greenconcluded, “With a solid eco-nomic outlook, Dubai’s posi-tion as the headquarter cityof choice for global corpo-rates in the Middle Easternregion looks set to continue.However, with limited goodquality and efficient officeproperties available in themarket, it is likely that this

segment of the market couldsee a growing demand andsupply imbalance in the com-ing quarters.”

Depending upon how theAbu Dhabi and Dubai prop-erty markets perform in2015, the mortgage marketin the UAE will transform ac-cordingly. While in Abu Dhabiwhere high demand forhousing will make it easierfor banks and NBFCs to con-duct their mortgage busi-ness, a slump in residentialtransactions in Dubai wouldonly intensify competitionamong loan-providers.

Gulf Property asked few in-dustry experts for their opin-ion on various aspects of themortgage market, such asthe market’s present state,government regulations,competition between banksand NBFCs, and future per-formance. Here’s what theyhad to say:

A positive economic out-look and an increase intourist numbers, combinedwith a rise in per capita in-come and changing con-sumer behaviour arecurrently acting as a growthcatalyst for the sector. Dubairemains the principal re-gional draw as an estab-lished ‘retail tourism market’which is further reflected bythe continuous rise in newbrands and in footfall figuresreported by the malls.

“Total retail stock in Dubaihas now reached nearly 2.3million square metres, rising3.0% from the same periodlast year. Recent growth hasbeen a result of a number offactors, including rising visi-tor numbers, an increasingpopulation, and a strongbrand affiliation. This hasbeen underpinned by the de-velopment of mega sizeddestination malls, which are

28 Gulf Property

SPECIALFEATURE

What is your opinion about the mortgage market in the UAE?How do you find the mortgage sector performing presently?“The mortgagemarket of theUAE haswitnessedsignificantdevelopmentover time asmany banksare coming upwith someattractiveofferings.The CentralBank’sregulationshave helped in ensuring that buyers put in therequired equity which results in a healthybook build-up. To add to this, the low interestrate environment has made many end-usersconsider the option of offsetting rising rentswith mortgage instalments.”

Upendra Balchandani,Head of Product Development &Marketing, Personal BankingGroup, Commercial Bank of Dubai

“The mortgage cap has impacted the industryand has resulted in property prices softening,which was the desired result due tospeculation following the announcement ofExpo 2020. The market has matured since thecrash and is now putting necessary steps inplace to become a sustainable market.”

Dona Spencer and Chris Allen, CompleteFinance

Cooling measures were brought in at the endof 2013 with the doubling of transfer feesfrom 2-4 per cent and the mortgage capswhich have meant for expat buyers that theyneed a 25 per cent deposit if they are buyingbelow Dh5 million or a 35% deposit if they arelooking to buy above Dh5 million and a 40%deposit for second properties. For Emiratesthey need 20% deposit below Dh5 million anda 30% deposit for properties worth over Dh5million and for second properties a 30%deposit. This understandably had an effect onthe property market and mortgages with Q4of 2014 seeing a price drop of 5.2% acrossthe board. So with the market cooling and thevolumes of transactions falling we are seeinglenders trying to entice customers with lowrates. However there is talk of rates, whichhave been relatively low currently around the4% mark since the global property crash overfive years ago, potentially starting to move upbut this remains to be seen so far. With theintroduction of the Credit Bureau we couldstart to see banks tightening lending furtheron who they will lend to.”

Victoria Garrett, Associate Partner, ResidentialSales, Knight Frank

Gulf Property 29

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As we know, during the boom we saw in theUAE real estate market from 2003-08, therewere hardly any legislations and regulationsin place to control the mortgage market,which led to misuse of mortgage facilitiesfrom banks by speculators and flippers.During that period, banks witnessed

significant write-offs of mortgage loans in theirbalance sheets. However having learnt itslessons from these mistakes, the bankingsector in the UAE is operating in a highlyregulated mortgage finance environmentpost-October 2008. A testimony to this is thefact that the UAE Central Bank towards the

end of 2013 has increased the equity contribution limits significantlyfor end-users looking to obtain mortgage finance. Therefore, in myview, the UAE Government and Central Bank are taking the right stepsto make the mortgage market regulated. But there is still a long way togo before we see the mortgage market in the UAE being stronglyregulated, as it is in most of the developed economies of the world.

Mayank Sawhney, FormerDirector, TransactionAdvisory Services - MENA,Ernst & Young

“The regulations are actually one of the moststringent in this region. The Central Bankcarries continuous audits of underwritingdepartments to ensure they are following therules. The lending policy places quite a fewlimitations on lending and type of customers tolend to. Even though banks are sitting on a lotof liquidity, they are finding it challenging tolend to all applicants. This is the main reasonbehind the correction. The positive impact ofthis policy has been a low-risk mortgage bookfor clients. Since the risk-premium has fallen, the cost of funds hasfallen as well. This is why the lenders have been able to offer such low-rate mortgages.”

Do you think there is enough legislation in place to controlthe UAE mortgage market? How tightly does the governmentand central bank regulate activities in the mortgage sector?

Sam Wani, GeneralManager, IndependentFinance

“The governmenttook the right stepsto control the marketwith the CentralBank’s mortgagecaps being put intoplace at the end of2013. The crash in2008 was partly dueto investors flippingproperties. But nowwith the mortgagecaps and transferfees being doubled, ithas made it far lessattractive forinvestors to be ableto do this. Thesecaps not onlyencourageresponsibleborrowing but alsoresponsible lending.”

Victoria Garrett

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30 Gulf Property

What is your take about the competition between banks andNBFCs in the market? From a buyer’s perspective, which ismore profitable: Taking a home loan from a bank or an NBFC?

UpendraBalchandani

“Conventional Banks and NBFC's have a stringentcompetition, amongst them in the field ofmortgage finance, like they have in other areasof finance. Both banks and NBFC’s have theirown pros and cons when it comes to providingmortgage finance. Conventional banks have avery stringent criteria and pre-approvalprocesses, which have to be followed forgetting a mortgage finance approval. This canbe a very lengthy and time consuming process.

On the other hand, most of the NBFCs provide a very quick, easy andflexible mortgage approval process. However, in terms of borrowingcosts, NBFC's generally are more expensive than conventional banks,for consumers availing mortgage finance. Therefore, a buyer shouldthoroughly weigh these pros and cons of both, before deciding onwhat works in his/her interests, given one’s own individual set ofpreferences. For some borrowers, conventional banks may fit the bill,whereas for others NBFC's may be more suitable.”

Mayank Sawhney

“Both have theiradvantages anddisadvantages.NBFCs are lean andmore efficient. Thelong-term servicelevels from NBFCswould be better.They will provideproducts that a high-street bank may notbe able to provide.However banksprovide the scaleand scope ofproductdiversification. Youcould have yourmortgage, car loan,credit card and acurrent accountbeing managed froma singlerelationship.”

Sam Wani

“As a buyer, he orshe is moreinterested in theproposition andservice. It’s all aboutgetting the best dealin the mosttransparent way withease of application.”

“In the current realestate market, theNBFCs are very nicheand unique lenders wholend to people, mostlyeither entrepreneurs orSMEs, and people whoare struggling to getloans from normalroutes. They are notreally preferred formajor property loans,since majority of thepeople do not preferborrowing from NBFCs. I wouldn’t really putthem in the bank category.”

Richard Paul, Head of ResidentialValuations, Cluttons

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Gulf Property 31

Residential sales have been going down in Dubai, with manypredicting that the market will slump in 2015. How do you seesuch a trend affecting the mortgage market’s performance?

Sam Wani

“Q4 2014 saw a drop of 5.2 per cent across theboard with property prices in Dubai and we arepredicting at least a 10 per cent drop in themarket, which are properties with Dh10 millionplus and potentially even greater downwardpressure in the mainstream market, with 25,000new units due to come online this year. Thisdrop in prices is not a surprise given the coolingmeasures that were brought in the end of 2013 to

have this effect on the market, after Dubai globalrecord growth in 2013 of 35 per cent in someareas. If the market continued on this trajectoryit would not have been sustainable. Given the

drop in volumes of transaction due to it being harder to be able to buy,there will as a result be a slowdown in mortgages being taken out inthe current climate. If the lending criteria stays the same and pricesdon’t fall too far, I don’t see this situation changing, in fact if interestrates do potentially increase it will only slow things down further.”

Richard Paul

“If a market issoftening, then therewill be less demandfor property. Therewill be hardly anynew mortgages.Banks can still dobetter if they stick totheir customerservice. Butultimately yes, if youhave a softeningmarket with lesstransactions, therewill be lessmortgages. Thatsaid, 2015 and nextyear, we are going tosee a plateau inprices and in thesoftening, prices willcome back. Thelenders will benefitfrom there on.”

“With more budgetproperty and lowrate mortgages, end-users end upreducing theirhousing cost to alarge degree. Weexpect this segmentto grow in comingmonths and years.”

“With oil pricesdeclining tosignificantly low levels,it is very likely that thisslowdown in the Dubaiproperty market, wehave been seeing forthe past few months, isgoing to persist overthe short term. Addingto this is the fact that the UAE property marketis a highly sentiment driven market and till thetime we see return of the positive and buoyantsentiment amongst end-users, it is quite likelythat the mortgage market's performance is alsogoing to remain quite sluggish.”

Victoria Garrett

Mayank Sawhney

32 Gulf Property

SPECIALFEATURE

Danube takes market in Dubai bystorm with unique payment plan

Legendary Indian cricketer and Danube’s brand ambassadorSunil Gavaskar (centre) with Rizwan Sajan, Founder andChairman of Danube Group (second from left) and other seniorexecutives at the launch of ‘Glitz’ in Dubai on December 23, 2014

As challenges in themortgage marketmount with fallingvolumes of residen-tial sales in Dubai, it

is not just banks and NBFCswho are facing the heat andcompeting against eachother. Realising that peopleare buying less today, Dubai-based real estate developerDanube Properties has intro-duced a probably unprece-dented instalment paymentplan for their second projectnamed ‘Glitz’, which almostremoves the buyer’s need toavail a bank home loan.

Across the length andbreadth of Dubai, one is sureto find large ad hoardings of‘Glitz by Danube’ screaming‘Pay 1% every month’ andown your apartment. Aston-ishing isn’t it! Rizwan Sajan,Founder and Chairman ofDanube Group, explains thisunique payment scheme:“Making this sale more at-tractive is the payment planbeing offered by Danube tolong-term investors and end-users, which requires the

buyer to pay 10% down pay-ment followed by 15% in 60days. The balance amount isto be paid in 75 equalmonthly instalments of only1% each.”

The Dh300 million worthproject is being constructedat the prime location of DubaiStudio City, close to the pro-posed Village Centre. Thecluster of buildings com-prises 300 luxury apartmentunits available in a mix ofstudio, 1, 2 and 3 bedroomapartments. The spacioushomes range in housingareas from 470 to 1,645square feet in each apart-ment block of eight levels.Danube has promised to de-liver ‘Glitz’ within the next 30months or by mid-2017.

Danube’s maiden project‘Dreamz’, with 171 luxurytownhouses, was sold out onthe first day of the saleslaunch. ‘Glitz’ received farbetter response, withDanube claiming that allunits were sold out within thefirst two hours of the saleslaunch. The sales meet saw

an overwhelming number ofbuyers, investors and bro-kers purchasing apartmentsthat were offered on a first-come-first-serve basis.

“We are very pleased withtoday’s response to our sec-ond project and it has furthercemented our reputation asa developer of people’schoice. Danube Propertieswas launched to make avail-able luxury homes at afford-able prices in the market andwe have successfully man-aged to do so with both ourprojects. Our overall productoffering creates a great op-portunity for both end-users

and investors who couldreap good dividends within afew months as we prepare toconstruct the project,” Sajansaid at the sales launch.

Thanks to an attractivepayment scheme and an ag-gressive advertisement cam-paign on TV, radio andhoardings across the emi-rate, Danube has achievedquick success with ‘Glitz’.Danube has also proved howa developer can gain from of-fering a tempting instalmentplan, that makes it conven-ient for buyers to pay directly,rather than making themtake a bank loan.

Talking about his sellingstrategy, Sajan said, “Every-body has their own way ofselling properties. I am notstealing away any competi-tion from anyone. Our targetaudience has always beenthe mid-income segment, wewill always continue to targetthat. Everybody will havetheir share, there are lot ofdevelopments happening.We try to make somethingunique that will make us suc-cessful in the long-run.”

People have had mixedopinions about the paymentstructure. Read what expertssay are the pros and cons ofthe plan and how it will im-pact the mortgage market:

Investors and brokers thronged the Baniyas Ballroom of GrandHyatt Hotel in Dubai for the sales launch of ‘Glitz’ on January 9

Gulf Property 33

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Don’t you think such a pricing structure by Danube diminishesthe banks’ role in the mortgage market? If other developersfollow suit wouldn’t banks and NBFCs face stiff competition?

“It is absolutely right that if a developer offerspayment plan such as the one offered byDanube for their ‘Glitz’ project, it significantlyreduces the buyer's need to avail home loanfrom a bank. Although, the kind of paymentplan that Danube has offered may be new to theUAE, but real estate developers in other partsof the world have quite often launched suchaggressive payment plans to make their

projects attractive to the consumers. The overall real estate market inany part of the world needs the strong life support of the mortgagefinance provided by banks. Therefore, given the fact that it is notpractical for all developers to be able to provide such long paymentplans for all their projects, I am of the view that the developer'spayment plans and the bank's mortgage finance are bound to co-existand flourish together in any growing real estate market. It should alsobe remembered that the developer offered payment plans which at themost extend for 5 to 6 years, and will still not be able to replace themortgage finance needs of a consumer who is looking for a 15 to 20years loan tenure, which generally only banks can provide.”

Mayank Sawhney

“Developers beinginnovative will helpmore end-users toown rather than toopt for rental. Someclients however mayprefer to buy acompleted propertythan opt for an off-plan. A 3BR off-plancosting Dh1.6mnwould require a waitof 2 to 3 yearsbefore the propertyis handed over. Rentincurred meanwhileshould be added tothe property’s cost.They will also addthe opportunity-costpayments made tothe developer whilethe property isunder construction.”

Sam Wani

“Not at all. If you actually analyse the paymentplan that Danube is offering, the buyer still hasto come up with 25 per cent deposit. There areother projects in Dubai offering similar sort ofpayment plans. If we use Danube as anexample and you are buying a unit for a milliondirhams, first you pay the 25 per cent initialand then you have to pay another Dh750,000over 75 months, which shows that you will bepaying Dh120,000 in a year for a 1BHK. It is ahefty amount; it is definitely attractive but itdoesn’t make it easy to pay for everybody. Lot of people would still godown the traditional lending route.Buying off-plan is slightly risky;ultimately the property is not ready yet.”

Richard Paul