How To Buy A Property In Dubai - The Expat's Guide
Just in case you have a couple of extra Dirhams lying around
A recent survey by compareit4me.com revealed that two thirds of expatriates do not own a home in the UAE and that a whopping 76% of that number would like to purchase but hold back for a number of reasons.
We spoke to Andrew James Burnett from Thomas Homes, a property consultancy company with over 30 years of experience in the property industry, who thinks that most people struggle because "they can't raise the initial funds" (usually a 25% upfront payment of the total cost), that and a lack of knowledge of the market has resulted in a much bigger number of renters than buyers.
Many expats still question whether they're even allowed to own property here. The answer is yes. In 2002 Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, Dubai's Crown Prince issued a freehold decree which allows foreigners to buy, sell or rent property freely in areas such as Sheikh Zayed Road, Jumeirah, Jebel Ali, parts of Bur Dubai and the area where Dubai connects with Abu Dhabi .
This sparked a massive boom in the housing market and with rental prices on the increase, purchasing became the more attractive option, the market then skyrocketed but the level of growth was largely unchecked. In 2008 Sheikh Hamdan introduced RERA (Real Estate Regulatory Agency), an extension of the Dubai Land Department (DLL -Dubai's property rights governing body) to oversee future strategy and ensure regulation of brokers and companies (basically so you won't have some cowboy without a licence trying to sell you a house). Despite RERA's best efforts there are still con-agents operating without the proper authority, so be aware of scams.
We're not saying it's easy to buy a house, as well as the above (and as you're probably aware), administration here is infamously slow, however, with the right guidance and planning you can make it as pain-free and as safe as possible from your end. With the help of Mr Burnett we have put together our top tips to get you started on the right path. We'll have you in your new pad in no time...
Have your finances in order...
This may sound like an obvious one but banks here ask for a bit more financial security than they do in other countries. While you might be prepared to hand over 25% of the full price upfront, to be able to secure a mortgage, be prepared for the mortgage lenders to dig a little deeper into your finances as well.
On top of the deposit, lenders will also calculate the average monthly income you're expected to make to secure the mortgage (the sum will vary based on the price of the property and the length of the mortgage). A study by propertyfinder.ae found that to be able to afford an average apartment in Dubai, you need to be pulling in about AED 30,000 per month.
Do your research...
We can't emphasise enough how important it is to find a good estate agent. You can purchase directly from a developer but an agent will help you navigate through the minefields of the purchase and their expertise can be invaluable in what can be a particularly stressful time. A good agent should have great knowledge of the local market, they will tackle the paperwork, deal with the negation, arrange viewings, they won't be biased to one development and will ultimately help you find the right unit. On average, agents cost about 2% of your properties total price tag.
Some well-respected agents:
Calculating your mortgage...
Before the doom and gloom of the 2008 recession it was easy-peasy to get a mortgage. Now, banks are rightly being more careful when it comes to handing out the big bucks...calculate what finance you may need and have the funds to back it up.
As we already mentioned, you need a minimum of 25 per cent of the total sum to impress the banks and acquire a mortgage. The maximum length of a mortgage in Dubai is 25 years, although the majority of people opt for a 15 year option. One thing to bear in mind when calculating your budget is monthly mortgage repayments cannot exceed 35 percent of your net monthly income.
Check here for the Mortgage House online mortgage calculator.
A brief outline of procedure...
In an ideal world, this is how things should play out...
Finance is approved for the property by a mortgage provider/the cash is made available, an agent is drafted, the property is viewed, the seller is notified and a formal contract is drafted. Prices are negotiated; usually people look for a 5/10% discount off the asking price. At this point the buyer and seller enter into a Memorandum of Understanding (MOU) whereby each party puts forward a 5% deposit; if either party pulls out for any reason from this point on, the 10% will be transferred to the other party. If finance is being used, the banks will apply for a property valuation. The master developers of the building will issue a No Objection Certificate (NOC) to prove there is no debt on the property. Both buyer and seller meet in the Dubai Land Department transfer office to officially transfer ownership. A new title deed will then be issued in the name of the buyer.
According to real estate consultants Knight Frank, 'the average property sale and purchase in Dubai takes about 30 days to complete from the date on which the Agreement for Sale is signed. However, it could take longer if there is a mortgage, particularly on the seller’s side'.
Useful tips to keep in mind...
*You purchase a property without the use of a solicitor: "Most estate agents will have a sales progression team with the appropriate licence who will deal with the Dubai Land Department to organise your transfer (land registration) fee for you." Says Mr Burnett.
*Your agent can help you find a suitable mortgage provider: "It's common for estate agents to work in conjunction with mortgage providers, for example at Thomas Homes they work with a couple of different lenders, most often with Mortgage House, a mortgage provider with access to over 42 different lending institutions across the UAE. Otherwise, people can secure finance separately with a mortgage institution before they contact an agent."
*We're in a buyers market right now: Buyers should look for a 5 - 10 % discount on the current property asking price. This isn't Karama but sellers are willing to strike a deal so make sure your agent is prepared to haggle.
Extra charges to be aware of...
The extra costs are made up of a land registration fee to the the Dubai Land Department, (DLL) your agents fee, and a couple of smaller fees; these generally add up to 7% of the properties value.
Expats should prepare to pay 4% land registration fees to Dubai Land Department on all property transfers. "The rule of the land states it should be 2% from the buyer and 2% from the seller, however, due to a few loopholes on the sellers side 'about 75% of the time the buyer will pay the 4%" Says Mr Burnett.
-Maintenance fees. These vary depending on the building. Most buildings have a fixed rate, priced by square foot but this also depends on the building quality, location and services in the building (basically how snazzy your pool and gym are). It's worth looking into this before you purchase as this will be an added fee you need to pay quarterly.
Obstacles you may face...
Technicalities with the NOC, for example: if the current owner hasn't paid the maintenance fees.
Discrepancies with the title deeds: there may be delays if they are being transferred from an Islamic bank to a Western bank.
Buyers can't raise funds: an upfront cost of 25% can be difficult to raise.
Be aware of scams; RERA was introduced to help eliminate scams in the housing market and they have compiled a useful checklist to help avoid them, check out their site for more details.
1. Check the trade licence of the real estate company
2. Check its approved activities according to its licence from the DED (Department of Economic Development)
3. Check registration number and the brokers’ licence on the RERA website