Mortgage worth considering now

Dubai: With mortgage rates and property prices easing, owning a home can be a smarter choice for some residents in the UAE.

Some housing experts said acquiring a property at current rates through a 25-year mortgage actually comes out cheaper than renting an apartment in the UAE, if extra fees are not taken into account.

Interest rates on housing loans have reportedly eased to as low as 5.49 per cent. Banks, at the same time, are lending in volume, some with up to 85 per cent of a property’s value.

“Banks are becoming more flexible and even competitive now that the market has shown clear signs of stability. In the life cycle of the real estate market, today is quite possibly the best time to invest and capitalize on a long-term investment,” said James Gauduchon, head of marketing at Better Homes, which works with select partners for all types of home financing.

Gauduchon compared the basic costs of renting an apartment in a prime location in Dubai to illustrate his point further.

“If a one-bedroom property in Downtown (Burj Khalifa) costs Dh75,000 per annum or Dh6,250 per month, a monthly mortgage repayment costs less. The same property might cost Dh1 million to purchase and if 20 per cent of its value is paid as a deposit over a 25-year period with a mortgage rate of 5.5 per cent, the monthly repayments would be Dh4,900,” he explained.

“Even if your monthly payments end up costing the same or even slightly higher under home ownership, it’s a solid investment. If you’re a tenant, you’ll never get the hard-earned money back.”

“Whereas, if you’re an owner, you’ll recover your monthly costs when the time comes to sell your property — returns are at impressive rates, and a safe return is achievable if the buyer ever leaves the UAE,” he added.

Besides, Gauduchon noted that residents no longer have the transient mindset and many are now considering Dubai as their “home” for three to five years, so buying becomes more practical.

“The idea is of course to pay towards a mortgage and have access to this monthly commitment later on rather than lose the same commitment to a landlord for rent instalments. You can never get back your rent instalments, but if you sell a property, you may break even or better still, made a profit through capital appreciation of a home.”

Michael Michael, director of Landmark Properties, however, noted that buying a property comes with additional costs. If extra fees, such as maintenance, are included in the calculation, a Dh1 million mortgage can easily cost a buyer around Dh17,000 more per year.

“I believe a mortgage of Dh1 million will cost you approximately Dh6,000 per month, exclusive of fees, which equates to about Dh72,000 per annum. These kinds of figures can be compared to renting a one-bedroom apartment in the downtown area.

What one must consider, however, is the fact that there are maintenance charges which range around Dh20 per square foot, therefore your payments increase to approximately Dh89,000 per annum,” he told Gulf News.

“While this exceeds the current rental rates, it should be noted that you now own a property and are investing in your own future and over the duration of the mortgage, there should be an expectation to see some capital appreciation of the asset.

Steve Gregory, managing partner at Holborn Assets, said a Dh1 million mortgage may require a deposit of Dh250,000, plus a further three per cent agency fees and registration fees.

“If you have Dh320,000 spare, you can perhaps borrow a million and buy a property for Dh1.25 million. What rental income would it bring? Could you rent for less? Are you afraid prices will rise steeply as they did up until the crash? I think about eight per cent yield would be considered high today, so maybe Dh90,000 rental income per year. Yet you still have to pay the developer annual service fees, perhaps Dh40,000. The mortgage cost could be Dh90,000 per year. And you need insurances also,” noted Gregory.

“There are further risks including the possibility of loss of employment and leaving the UAE as a result. If you then get tenants, how will they keep your property? Work out all the costs before committing to buy and build in a margin of 20 per cent on monthly surplus, ready for when interest rates go up, as they are sure to,” he added.

Make sure you can cover the loan

London: Although monthly mortgage payments can turn out cheaper than a housing rent, it doesn’t mean every tenant should consider borrowing money to buy a house these days.

“Residents considering making the switch from tenant to owner should be stable — careerwise; financially comfortable, with a degree of personal savings; and should be considering staying in Dubai for at least three years,” said James Gauduchon of Better Homes.

If you think you will have difficulty to even cover the mortgage loan, it may be in your best interest to abandon the idea, otherwise, you are certainly headed for trouble.

“If you can cover all the costs with 50 per cent of your income, you might look at it. I know someone who bought and now rents a room in shared accommodation to meet the shortfall on the total costs while the property is rented, as he cannot afford to live in it,” said Steve Gregory of Holborn Assets.

“Property ownership is risky anywhere. In a transient city, there are additional risks. Perhaps you would be better off putting your money into mutual funds, and looking for an eight per cent yield on it. You can cash them in at any time, though all markets go down as well as up.”

There’s the age factor to consider as well before getting a mortgage. While older people may have sufficient capital to buy a house, they need to take into account how local laws in the UAE can affect their investment.

“Sharia prevents the passing of a property to the wife should the husband die. It follows the male bloodline. In addition, if older people buy, they have fewer years for the mortgage loan as it must be repaid by 65 usually. Thus, a 50-year-old must repay the loan capital over 15 years, which is much more expensive than over 25 years,” said Gregory.

Rates could start as low as 5.49%

Mortgage rates in Dubai start at 5.49 per cent and work up to 7.5 per cent, according to Better Homes. In the boom days, rates were more in the region of 8.5 per cent to 9.5 per cent, Landmark Properties data showed. Loan terms currently on offer are between 20 and 30 years. Some banks don’t require processing fees, while others require a payment of 0.75 per cent to 1.25 per cent of the loan amount.