How Do Mortgage Law Changes Impact Dubai’s Real Estate and Economy in 2025?

Ramtin
Uncategorized
January 29, 2025
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Real Estate Starting from February 1, 2025, banks in the United Arab Emirates will no longer cover the 4% DLD (Dubai Land Department) fee and the 2% brokerage fee as part of the mortgage financing. This significant change in real estate regulations can have far-reaching impacts on the real estate market, buyer behavior, and the economy of Dubai. This article will examine the details of this change, its effects on the economy and real estate market, and expert opinions

Dubai, as one of the major economic and real estate hubs in the world, has always seen significant changes in its financial and property policies. Recently, it was announced that starting February 1, 2025, property buyers will be required to pay the costs related to the Dubai Land Department (DLD) fees and brokerage fees out of pocket. This change, aimed at aligning with international standards, could transform the real estate market and have a significant impact on Dubai’s economy.

Change in Laws and Details:

According to Rohit Bachani, one of the founders of Merlin Real Estate, banks in the UAE will no longer cover the 4% DLD fee and 2% brokerage fee as part of mortgage financing. In developed markets like the UK and the USA, such fees are not included in the mortgage and are paid directly by buyers in cash. This move is seen as a step towards aligning more closely with international markets.

Why has this change occurred?

  • Alignment with global standards: In developed countries, similar fees are generally paid by buyers.
  • Market control: This measure is designed to prevent the overheating of the real estate market and create balance in prices.
  • Reduced risk for banks: Banks will no longer need to finance these fees through mortgages, which could reduce their financial risks.

Impact of this Change on the Real Estate Market:

1. Increased upfront costs for buyers:

Buyers in the secondary market (ready properties) will now have to pay additional upfront costs. For example, in a transaction worth 1 million AED, the buyer would need to pay an additional 60,000 AED, which includes the 4% DLD fee and 2% brokerage fee.

2. Shift towards off-plan markets:

Farooq Syed, CEO of Springfield Properties, predicts that off-plan projects (pre-sale properties) will become more attractive. These projects generally require lower upfront payments and offer long-term payment plans. This could result in a shift in demand from the secondary market to off-plan projects.

3. Impact on prices:

  • Downward pressure on prices: This change is expected to reduce initial demand in the secondary market, which could apply downward pressure on prices.
  • Market stabilization: This measure could help create balance and prevent prices from escalating too quickly.

Economic Impacts:

  • Increased liquidity requirements for buyers: Buyers will need to arrange more funds upfront, which could impact their financial capacity.
  • Increased attractiveness of new projects: Projects with long-term payment plans and pre-sale options will become popular.
  • Increased competition among developers: Developers may offer better payment terms to attract buyers.

Expert Opinions:

Rohit Bachani (Merlin Real Estate):

  • This change will bring the market closer to international standards.
  • Although it may face resistance initially, it will not hinder market growth in the long term.

Farooq Syed (Springfield Properties):

  • This change will direct buyers towards the off-plan market.
  • There will be downward pressure on prices, which is essential for market stability.

Suggested Actions:

  1. Raising awareness among buyers: The government and real estate companies should inform buyers about the new changes and provide necessary guidance.
  2. Offering incentives by developers: Developers can create better payment conditions to attract buyers.
  3. Supporting buyers with limited budgets: The government can design programs to support buyers with limited budgets.

Conclusion:

The change in mortgage financing laws in Dubai is a significant step towards aligning with international standards. While this change may initially impact buyer behavior and prices, it will help stabilize the market and contribute to its sustainable growth in the long term. Successful implementation of this change requires cooperation among the government, banks, and developers.