Expat cash buyers from other countries are underpinning the property market in the United Arab Emirates as prices and construction pick up.
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Despite a thriving economy, house prices are fast approaching the limits of affordability for lower paid expats and locals living and working in Dubai as they pick up and head back towards peak levels last seen in 2007, according to research by Arqaam Capital.
Last year, says the firm, house prices surged upwards by 22% in Dubai.
However, this puts them at around four times the rate salaries are increasing and has already locked around a fifth of the population out of the market, explains the study, leaving the market open to buyers living outside Dubai.
Luxury apartments are selling at £300 a square foot, 40% higher than the price of above mid-end apartments which are priced at £215 a square foot, while cheaper apartments are on the market for £135 a square foot.
The firm suggests the UAE is the only Gulf States country paying slightly higher salaries in 2013 – up 0.1% from 5.2% in 2012, and this is bolstering consumer confidence and encouraging mortgage borrowing.
Banks in Dubai lent £43 billion to home buyers last year, up 7% from 2012, says Arqaam.
“We have calculated that 17% of the expat population in Dubai cannot afford to buy a home there and another 16% of the population earning less than £60,000 a year will have problems raising a mortgage under the current rules,” said a spokesman for the firm.
“That means, according to our research, that six out of 10 home purchases are in cash and that 50% of all purchases are by foreign buyers.
“Our view is that a lot of the increasing value of high-end apartments comes from foreign buyer interest because they take a view that property prices will increase and continue to give good rental yields.”
The worry for the market, according to the report, is the combined effect of freezing out local and expat buyers will slow down the market once demand has equalised with supply of homes.
The study goes on to say 60% of expats cannot afford to buy an apartment in Dubai with a mortgage, only 22% can afford to buy any apartment, while only a third of the emirate’s population could raise a mortgage on mid or low-end apartments.
Property prices in Dubai are still significantly below their historic peak, despite a recent surge in values.
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