7 days ago
Dubai lures fleeing Britons with first-time buyer scheme – but there's a catch
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Dubai is luring British first-time buyers with cheaper mortgages and flexible payments, despite experts warning of a property price plunge.
The United Arab Emirates has become a popular destination for millionaires fleeing stricter tax regimes elsewhere. Now, it has launched a range of perks for those buying their first home in Dubai, as price surges push first-time buyers out of the market.
The Dubai First-Time Home Buyer Programme, rolled out earlier this month by the Dubai Land Department and the Department of Economy and Tourism, can be used by any adult resident of the city, including expats, on a property worth up to AED5m (£1m).
First-time buyers will be given priority access to new developments, as well as cheaper prices for new-build flats. Flexible payments will be allowed for off-plan purchases, as well as government registration fees.
Buyers will also benefit from cheaper mortgages with lower interest rates and faster approval processes, the government said.
Ben Perks, of Orchard Financial Advisors, said: 'There are a growing number of young Britons that are completely disenfranchised with the UK property market.
'Dubai's new first-time buyer scheme is clever and could attract Britons. I'm sure other countries will follow suit and come up with ways to entice our hard-working youngsters.'
But experts warned of the risks that come with such a move, with property prices in the city forecast to fall 15pc in the coming years.
Nicholas Mendes, of mortgage broker John Charcol, said: 'While the incentives on offer in Dubai may well appear attractive at first glance, particularly for younger Britons who are increasingly priced out of the UK property market, there are nonetheless some important caveats to bear in mind before making such a significant move.
'I would urge caution among first-time buyers who are viewing this as a quick or speculative investment opportunity, particularly if they have no long-term plan to remain in the region.
'The local market is heavily skewed towards off-plan sales which tend to carry a different risk profile compared to completed properties in more regulated markets.'
Mr Mendes added: 'Add to that the fact that price corrections have been forecast, with some estimates suggesting falls of up to 15pc in the next year or so, and there is a real risk that buyers could find themselves holding an asset that is worth less than they paid, particularly if they are forced to sell within a short time frame.'
He warned that the 'cost of exiting a market like Dubai' can sometimes outweigh short-term financial gains.
Mather and Murray Financial independent financial adviser, Samuel Mather-Holgate, added that while the scheme was 'impressive', its popularity could have negative implications.
He warned: 'I would be worried about falling prices in the next five years, and a new build off-plan property is the last thing you would want in that eventuality.'
British buyers would benefit from a strong sterling position. In January, AED5m would have cost approximately £1.12m. It is now closer to £1m, a saving of around £100,000.
Prem Raja, of Currencies 4 You, said: 'For Britons looking at Dubai as a lifestyle or investment destination, the combination of a softer AED, flexible payment plans and early access to new launches creates a very compelling window of opportunity.
'Timing, both in market and currency terms, has rarely looked better.'
Dubai saw the number of millionaires living there double between 2014 and last year, according to wealth firm Henley and Partners.
House prices have surged as a result of its new popularity, rising a further 3.7pc to AED1,749 per square foot in the first three months of this year, according to estate agents Knight Frank. This is 17.6pc higher than the previous market peak in 2024.
However, property prices are set to fall by as much as 15pc in the second half of this year and in 2026, according to Fitch.
The ratings agency said: 'In our base case, Dubai real estate prices are close to their peak and a moderate correction is likely.'
This could signal an end to the post-pandemic boom in the Gulf state.
Residents of the city pay no income tax on salaries, investments or rental income earned locally. There is also no capital gains tax, inheritance tax or annual tax on worldwide assets. VAT, which is 5pc, is not applied to rent, groceries or school fees.
The city saw a record 169,000 transactions last year, worth AED367bn. But cash buyers are the most common type of buyer in the city, making up 87pc of transactions, shutting out those with small deposits.
In the UK, the average house price is now more than £265,000, according to the Land Registry. The average deposit paid for a first-time buyer is £34,500, according to trade body UK Finance.
First-time buyers should proceed with caution, mortgage brokers have advised.
Janet Fernandes, of MPowered Mortgages, said: 'Lenders are more relaxed around affordability criteria than they are in the UK for example, so you need to take this into consideration and always consult with a mortgage broker that know the market well. The mortgage default rate in Dubai is considerably high for this reason.'
British buyers are also 'more vulnerable buying in Dubai versus the UK'.
