Buyers opting for “Developer Financing” Deals to counter High Mortgages

Dubai: People who are interested in Real Estate, especially the end-users, are increasingly moving towards developer-backed financing deals rather than opting for mortgages as the rates keep on increasing.

This sway of consumers will lead to the developers getting direct installments to whatever projects they have ready in their portfolio, especially the ones that are ready to shift into as soon as the signatures on the SPA are done and the deal is concluded. Thus the developers have started offering options of 3-5/6 years for completion of the payments owing to the gap in the market, further offering buyers deals and payment structures that are considerably easier to manage.

“For those end-users who are planning to switch from being a tenant to owner, these easy-on-the-pocket schemes from developers would be a huge relief,” says an expert. “These schemes offer more guarantees as they are fixed throughout the payment tenor. When mortgage rates change nearly every month, end-users are going for the direct-from-developer option.”

Pre-Emptive measures being taken on US Price Hikes

On Wednesday (November 2), the Central Bank of the UAE said that they will be matching the 0.75 percent price hikes by the US Fed. Current mortgage holders have already been dealing with three such 0.75 percent price hikes in recent months, which is the reason behind them starting to make defensive moves to cater to higher payouts on their EMIs.

One such strategy has been to complete the transaction and sign up with a mortgage lender in July/ August when it was evident that the rate increases would be enormous. “By September, most of them had brought forward their purchases,” says a banker.

To put this scenario into perspective, almost all the banks had been reporting increasing mortgage deals right through the first-half.

In October, property sales in Dubai were a whopping 4,087 transactions in total according to Property Finder, a listings portal. This is a “significant increase” of 27.3% since last year. Transactions for existing real estate increased by over 63% reaching Dh14.2 billion compared to last year’s figures which were Dh8.7 billion in October 2021.

Even in the properties that are ready to be sold off, developers are starting to offer support to buyers with staggered payment schemes, which would in turn feel “affordable” to the party. This is a major reason behind the effectiveness of the “1% scheme” after the constant interest rate hikes. ( A couple of developers have also garnered interest in the sub-1% developments and are hoping that these would be gaining interest and would become successful in the coming months.)

Sign up directly with the developer

“Developer financing options are readily available,” said Dhiren Gupta, CEO of 4C Mortgage Consultancy. “However, with such financing, the payment is confined to shorter periods (than the 15-25 year tenors on mortgages). Moreover, the property’s price would be relatively higher than the current market value of a similar unit.”

Other great opportunities for the end-users include taking on a rent-to-own option which is relatively rarer and is only available with a limited number of developers in Dubai. Once you are done with the initial down payment of 20-30%, you can effectively move into the ready unit with a monthly payment plan and the amount would be contributing towards your end goal of owning the property rather than renting it.

At the end of the day you might be paying a slightly higher rate for the property but all these benefits increasingly enhance your home buying experience.