New research has found that it is cheaper to buy properties in certain areas of Dubai as compared to renting them.
Consulting firm ValuStrat said that analysis of a representative range of properties worth Dhs1.575 million or less in freehold locations across the city found that in some cases, monthly mortgages were cheaper than rents.
A 740 sqft one-bedroom apartment in International City demands an average monthly rent of Dhs4,167, while a monthly mortgage on a 25-year loan (with a 4.25 per cent interest rate) would roughly amount to Dhs2,800, the study found.
Mortgages were also found to be lower than rents in Discovery Garden, JLT and Motor City, among others.
According to Declan King, director and Group Head – Real Estate, ValuStrat, stabilisation in residential sales prices during the second half of 2014, along with continued increases in rental rates during the same period, has brought about a scenario where it is now cheaper to pay a mortgage then equivalent rent.
“Our analysis reveals that many tenants may now be able to purchase a property similar to the one they are renting – but for a lower monthly cost. This appears to be particularly the case for lower cost starter type home,” he said.
However, King acknowledged that home ownership comes with added responsibilities, additional costs and less flexibility and also that interested buyers will require significant savings to make the switch.
“With a maximum 75 per cent home loan LTV, a typical Dhs1.5 million expat purchaser will need Dhs375,000 in deposit payments, Dhs60,000 in Dubai Land Department registration fees and Dhs30,000 in real estate agent fees – this is before they pay for a surveyor, discharge any mortgage admin or legal fees, or buy furniture.
“Should they choose to buy off-plan, then required savings will increase even more due to lower LTV rules for such properties,” he said.
Dubai’s real estate industry has rebounded strongly from its slump in 2009, with values close to 2008 peak levels in certain areas. However, experts say sales prices have stabilised since mid-2014.
According to CBRE, residential prices rose just two per cent quarter-on-quarter in Q4 2014, following a three per cent growth in the third quarter.
A report from property consultancy Cluttons in December also stated that Dubai’s real estate is entering a period of sustainability after a period of rapid price growth.