Drive along the Sheikh Zayed Road and you can not fail to see the longest-ever billboard advertising Abu Dhabi Commercial Bank's entry into the mortgage market. But this is the first sign of an explosion in mortgage offerings to come this autumn.
Bankers are cautious folk who make money minimizing risk rather than taking risks. They have thus been slow to come forward with mortgages for Dubai property. But all this is about to change.
The present mortgage market in Dubai is dominated by the developer-lenders Amlak Finance (partly-owned by Emaar Properties) and Tamweel (a joint venture between Dubai Islamic Bank and a Government investment body) with strong links to Nakheel. Alongside these new lenders are the banks: RakBank, HSBC and Mashreqbank, and most recently the National Bank of Dubai and the Abu Dhabi Commercial Bank.
The arrival of the last two UAE banks is enough in itself to portend a competitive market this autumn. But there are others about to launch as well, including at least one major international bank, and more local banks.
Thus far competition has tended to take the form of lower interest rates to new borrowers, albeit for a limited period. The existing lenders have been aided by the falling cost of long-term borrowing this year, as the UAE monetary policy effectively follows that of the USA with the dirham pegged to the US dollar.
Indeed, there is probably scope for tighter pricing yet, particularly if some new entrants decide to take a loss on initial lending to gain market share against the incumbents. However, the greater volume of business needed to justify lower mortgage rates is also likely to occur this autumn as lending to the re-sale market gets into full swing.
For the 'buy or rent' equation has swung decisively in favor of buying rather than renting: many current tenants are concerned about their likely rent rises next year; while the cost of a monthly mortgage is falling. So more-and-more people are going to want mortgages to buy Dubai property which will put downward pressure on operational costs for the banks.
It is going to be interesting to see how long this particular phase of cheap property remains on offer in the Dubai market. There may be such a rush to invest that prices take off vertically, until demand is back in equilibrium with supply. Or the market may remain skeptical of the prospects for Dubai real estate and hold off buying.
However, if the case for buying rather than renting stacks up, then the availability of finance is the next factor to be faced by most prospective buyers. So having a wider range of options in the mortgage market, and flexible lending to suit a variety of individual circumstances is essential, and likely in itself to stimulate real estate activity.
Fortunately the UAE banks appear to have recognized the huge market opportunity for them in financing Dubai property, and are strongly committed to developing a competitive mortgage market.
Naturally they will feel even more comfortable if and when a federal property law emerges, and that should also have a favorable impact on the mortgage sector.