UAE Central Bank hikes interest rates in response to move by US Federal Reserve

Despite the increases, haus & haus experts say the Dubai sales market is unlikely to feel any impact.

Hot off the local press is news that the Central Bank of the UAE (CBUAE) – along with Saudi Arabia, Bahrain and Qatar – has raised the Base Rate applicable to the Overnight Deposit Facility (ODF) by 25 basis points from 4.90% to 5.15%.

The move comes on the back of the US Federal Reserve increasing its key interest rate for a third consecutive time this year in a bid to tame inflation and restore price stability.

“Interest rates would have to rise a lot more or rents would have to drop significantly to make a difference.” Charlie Bannan, Sales Director, haus & haus

According to Arabian Business, the Fed “bumped up the policy rate by 25 basis points (bps) as the labour market remains tight, the unemployment rate is at a multi-decade low, and the central bank continues to try to bring inflation down to its target range of 2% after prices hit a four-decade last year.”

So, what does this mean for the Dubai real estate market – if anything?

“In my opinion, the interest rate hike isn’t going to touch the sides,” commented Charlie Bannan, Sales Director, haus & haus. “Although people might grumble at first it isn’t going to affect their decisions. People who were planning to buy will still buy.”

Bannan added that while rents are high, it still makes more sense to purchase a property. “Interest rates would have to rise a lot more or rents would have to drop significantly to make a difference.”

Harrison Rackham-Beadle, Greens & Views Sales Manager, haus & haus agreed.

“The vast majority of our buyers in end user communities are buying with a mortgage, and we don’t expect this to stop – especially in Springs, Meadows, Lakes, Greens & Views, Ranches & Dubai Hills Estate. This is unlikely to change, and we’ll continue seeing tenants become first time buyers despite interest rate changes,” he said.

Both haus experts said that as rates are expected to drop again due to the predicted recession in the US – and with AED pegged to USD – Dubai is set to reap the benefits of lower rates, as it did during the pandemic, without any economic impact.

“For this reason, many of our financially savvy clients are still choosing variable rates even with interest rates rising,” commented Bannan.

As for local banks, these changes are unlikely to affect the mortgage rates. "At this stage, it looks like the fixed rates will not be increasing as a result of the latest rise in variable rates" said Tanya Rabah, Managing Director at AFB Global.

"It's hard to predict the future in this market but we are seeing that the fixed rates will stay put for the foreseeable future. In fact, one of the lenders reduced their five-year fixed rate to 4.8% last week which is an encouraging sign."