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The real estate market in the UAE has been predictably unpredictable. An improved regulatory environment has definitely stabilised the market, but it still remains an interesting time for property buyers and home-finance seekers. However, the good news is that the first quarter transactions, especially the bulk sales of residential properties, indicate that the market is on its way to bottoming out.
A myriad of external and internal factors - be it the availability of affordable property, rent market and profit rates or financing regulations and an individual’s own cash position - make for complicated decision-making. Applicants need to cut through the confusion and understand which side of the price cycle they are on.
For instance, Dubai’s residential real estate market, which has seen price declines for the past two years, is now more stable and is likely to witness a rebound in the coming years. The 2020 World Expo, as we know, will continue to have a direct and indirect impact on the property market.
Along with home price patterns, buyers need to get a hang on profit rate trends. If there is a clear downward trend, it would be better to wait and watch, so as to get the best deal in both housing prices and profit rates.
While this strategy may not suit the end user with an urgency to buy, fortunately, financing rates in the UAE are still at historical lows.
For a layperson, a meticulous research of available properties and financing packages may seem a daunting task. Not only is it difficult to choose between variable versus fixed profit rates, it is important to understand associated costs and exit fees.
For some years, the role of home finance brokers or consultants has become quite popular. Such advisors are usually well-versed in financing packages offered by various banks and non-banking financial companies, and can help clients select the best deal.
Home finance brokers offer their services for a fee. However, we have witnessed that brokers in the UAE have slashed their consultation and service charges from over one per cent to a nominal flat fee or even free, thus luring many customers to seek their advice.
They offer financing solutions offered by multiple financiers, as they are tagged or affiliated with various banking institutions providing home finance.
Banks too, gain incremental business that is channeled through brokers, acting as a first-level check. In very specific cases, where banks have an exceptionally lucrative partnership with the broker, they may even offer promotional deals to the client.
Banking on banking institutions
Unfortunately, it may so happen, that a particular broker may not be well-informed about each and every product offered by institutions, and unwittingly may not be in a position to offer a solution as per the specific need of a client. Some customers may have complex requirements, where a broker may not be able to assist clients. In such cases, it is better to approach a bank directly.
In fact, heading directly for the bank can save clients a lot of time and confusion. With fierce competition in the financing sector, banks are now extremely accessible to customers through multiple touch points and are quite flexible in offering the best possible deals. Banks can also vouch for the authenticity of housing development projects, which can be a boon for buyers.
Financing activity in the Emirates is now on the rise, accounting for a larger portion of home transactions and easing out conventional cash sales. Home finance products are thus managed by highly professional sales teams within retail banks, who offer dedicated pre- and post-sales service to clients.
Bank sales staff work very closely with internal stakeholders for relevant approvals and have higher likelihood of securing better terms than external brokers. Regular customers can also leverage their relationship with the bank and extract better terms and rates.
A number of factors determine a client’s eligibility for a home finance and it is possible that a bank will make exceptions if they are long-standing customers. Some of the criteria include minimum salary requirement and length of service, and whether you work for a company, which is listed with the bank, among others. According to Souqalmal.com, those with a monthly salary of Dh20,000 in the UAE, can access 84 per cent of home finance available in the market.
Banks are also best equipped to deal with clients looking for Shari’a compliant products. For a customer, there is nothing better than predictability and peace of mind and since profiting from interest is frowned upon, clients of Islamic banking can be assured of safety.
Unlike the West, where customers are often subjected to stressful changes, under Islamic banking, terms are spelt out clearly in agreements and does not change post-fact, unless both parties agree to amend it. This has proven rather advantageous for clients, who had taken under-construction finance from banks. Even when unit deliveries were delayed, profit amounts they had to pay after years of delay were in line with what was agreed on at the time of contract.
Real estate financial decisions are difficult to make, but professional guidance and institutional backing go a long way to protect your interests.
Banks are large institutions, governed by central bank regulations. They are held to stringent minimum standards and are subject to heavy penalties. These layers of protection prevent potential clients from taking unnecessary risks, while bagging almost tailor-made home financing solutions.
Source: Pawan Dhawan, Special to Property Weekly
Head of Home Finance at Noor Bank
Al Nisr Publishing accepts no liability for the views or opinions expressed in this column, or for the consequences of any actions taken on the basis of the information provided.