Cash is still the king and it continues to rule Dubai's property market despite a decline of over one-third in transactions due to a slowdown in the economy and property prices, according to official data.

Figures showed that around 85 per cent of total investment going into Dubai's real estate is cash-based, while the remaining purchases are backed by mortgage. Since most of the purchases are spurred by cash, this shows that a large chunk of investments in property is coming from foreign investors, while mortgage deals are backed by residents.

Quoting data from the Dubai Land Department, the Central Bank of the UAE's 2018 annual report revealed that investments in real estate with a value of deals of less than Dh10 million in Dubai fell 34.3 per cent to Dh45.6 billion last year compared to Dh69.4 billion in the previous year.

Cash payments made up 84.4 per cent while mortgages accounted for 15.6 per cent of the property deals.

Raju Menon, chairman of Kreston Menon, said more cash transactions means most of the investments into Dubai's real estate sector is coming from abroad while smaller mortgage deals are done locally by residents living and working in the UAE.

"It means around 85 per cent of investment flowing into the emirate's property sector is coming from outside in the form of cash. These foreign investments should continue to happen and we need much more investments," Menon said.

He pointed out that overall investment declined due to a slowdown in the economy, a persistent fall in property prices and very low yields.

"Overall investment declined because investors are hesitant to invest due to a drop in property prices. Investors want to see capital appreciation. Now, return on investment has gone down and capital appreciation is also not there. Therefore, the investments have gone down," said Menon.

"More cash transactions means most of the investments into Dubai's real estate sector is coming from abroad while smaller mortgage deals are done locally by residents living and working in the UAE."

Raju Menon, Chairman of Kreston Menon

He praised the government's efforts, saying authorities are announcing great initiatives and encouraging people to come and invest here and then settle on a long-term basis with the introduction of permanent residency and long-term visas. In addition, the cost of doing business is going down too in the form of lower licence and visa fees.Quoting data from Reidin, the central bank report said that Dubai recorded an average fall of 6.4 per cent in residential property prices last year compared to a decrease of 1.3 per cent in 2017. The average price in the property market reached Dh12,918 per square metre compared to Dh13,803 in 2017.

Both property prices and rentals have been consistently on the decline since mid-2014. But now the markets are nearly bottoming out and remain attractive for investors.

Atif Rahman, director and partner at Danube Properties, said cash purchases – which include physical cash and current-dated cheques and instant bank transfers – has historically dominated property transactions in Dubai for a number of reasons. It happens in emerging and high-growth markets, and there are a few reasons for this.

"Firstly, the market is still run on traditional processes and the cash transactions reflect higher end-user purchase. So, it's not unhealthy. Besides, most property purchases start with a hefty downpayment, which is instant and cash or a current-dated cheque payment. It could also be due to higher foreign buyers entering the market, as Dubai attracts a large amount of foreign property buyers who buy either to live or to rent out as an investment," said Rahman.

He believes that the decline in the transaction value is temporary and it will bounce back by the end of the year. "One reason could be a decline in new property launches. Very few developers have launched projects in the first five months of 2019. However, the scene will change from September onwards as the countdown for Expo 2020 begins."Siddiq Farid, co-founder of Smart Crowd, said transaction volumes and values were lower in 2018 compared to 2017 so, naturally, payments will be lower. Mortgages declined much less due to potentially more end-users looking to take advantage of the reduced prices.

Mortgage rates in the UAE increased last year and earlier this year in line with the Fed rate.

The central bank announced an increase in interest rates applied to its certificates of deposits, in line with the Fed's decision to increase its target Federal Funds rate, which took place four times in 2018, reaching 2.25-2.50 per cent range. Similarly, the repo rate, applicable to banks' borrowing of short-term liquidity from the central bank against their holding of certificate of deposits, has increased in line with the Fed hikes.

Farid noted that pre- and post-payment plans offered by developers may be a key driver for the high disparity between cash and mortgaged payments.

"The ability for an individual to secure a property from as low as 5 per cent is more accessible than over 30 per cent of equity and purchase costs required to obtain a mortgage. With this in mind, individuals looking to acquire a property whether off plan, new build or secondary market with cash, pre/post payment plan or a mortgage should conduct thorough due diligence on the implications of each and how personal circumstances could be impacted," said Farid.

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