How to buy a house in the UAE?
All you need to know about the costs, processes and legalities.
Dubai – Many people come to the UAE hoping to stay for a few years and then move out – whether it is to go back to their home country or to move to a new one. However, most residents would admit that they stayed back longer than they had planned.
The reasons for staying back can be many – a great quality of life, security, tax-free incomes and the UAE’s central location on the world map.
Whatever the reason might be, for most expats, UAE becomes a second home. In such situations, renting a property for 10, 20, 30 sometimes 50 years does not make sense. If you are looking to buy a property in the UAE, whether to move in or to rent out as a landlord, these are the aspects you need to consider.
Before you begin looking for the property, ask yourself this question – what is the purpose of this purchase? Is it for use or an investment. You cannot move into a house and also hope for it to be an investment, said real estate expert Walid Al Zarooni, who is the owner and CEO of W Capital Real Estate.
In 11 steps, Al Zarooni gave Gulf News readers tips on what they need to look out for when buying a property in the UAE, which you can read here.
Once you have followed the tips shared by our expert, find out what kind of a property you wish to invest in and whether you plan to make a long- or short-term investment.
What are my options as a property owner?
There are two basic options for potential home owners in the UAE:
Under freehold, developers are also providing the option of ‘rent-to-own’, which is quite popular among investors as well.
So, which should you choose? Leaseholds essentially give you a 99-year ownership of the house, with the land partially owned by you and partially by the freeholder who has leased the property to you.
In this regards, a freehold might be a more viable option, according to Al Zarooni, with the residential unit as well as the land belonging to you. In the title deed of the property, you would not have any other person’s name mentioned as part-owner of the land. Freehold options across the UAE are also a lot more than leasehold.
"Freehold properties give you ownership of the residential unit as well as the land, whereas in a leasehold contract you do not own the land. In the title deed, you will have your name as well as the developer's name as land owners, if you opt for a leasehold"
Rent-to-own is a payment scheme introduced by developers in the competitive UAE property market, in which the investor can skip the 25 per cent down payment requirement, which can be difficult for some investors to arrange for. In such a scheme, the investor has to essentially pay the ‘rent’ for the property instead of the regular installments, until he or she clears all dues. The property ownership is then transferred to you. However, the premiums on rent-to-own schemes can be quite high, which is something you should consider when budgeting the purchase.
Off-plan or ready units – which should I choose?
Off-plan or under construction units are popular among some investors as these are units you can buy at better rates compared to the market price and tend to have a good price appreciation a well. However, there is a level of risk involved as the property might not get completed or might take longer to complete than planned. This is why it is always advisable to deal with registered and reputed developers and agents.
Ready units might come with their own risk, however, you can inspect the property and be sure of what you are buying. The price that you would need to pay, however, would be higher.
Make a detailed budget
The UAE property market offers options whether you have a budget of Dh500,000 or Dh90million. Once you have decided on the unit that is within your budget, find out about all the additional payments you would need to make.
This is where you would also need to consider getting a mortgage.
If the property is under construction, it is advisable to have a payment plan that is linked to the construction, according to Walid Al Zarooni.
"To be on the safe side, I would advise to have payments linked to the progress of the construction, so you would make a payment after a certain percentage of the construction is completed," he said.
Look at the overcharges
The sale price advertised does not include bank fees, commission or other governmental fees that add on to the price of the unit.
Here is a breakdown of additional costs that will give you a better idea of how much you would be paying in total.
Getting the right mortgage
While it is important to choose the right property, it is perhaps equally important to select the right mortgage plan as well. Look at the eligibility criteria, compare interest rates and fees and overhead charges. There are online services that compare mortgages, which might be worth checking out.
What documents will I need?
- Passport and visa copy
- Emirates ID
- Trade licence for business owners and salary certificate for salaried employees
- Bank statements of three to six months
A pre-approval provides details like the loan amount, interest rate, tenure, processing fee, etc. If you visit two to three institutions and request for pre-approval, it will give you a better idea of the installments and whether they fit into your financial plan.
Even though this might seem like an additional cost, with a processing fee of at least Dh1,000, it can help you make more informed decisions.
Once you have selected the mortgage of your choice, the bank or financial institution would conduct an inspection and verify the property’s documents, which you would be expected to provide, and once approved, the loan amount will be transferred to make the purchase.
To buy a house in Abu Dhabi, you need to sign a Memorandum of Understanding with the seller, where you would pay two per cent of the property’s value to the real estate agency as a service fee and another two per cent to Abu Dhabi Municipality.
Once you have signed the MoU and made the payments, you will get an ownership certificate from the developer.
Another Dh5,000 is to be paid directly to the developer as an administrative fee.
In Dubai, the process falls under the Dubai Land Department (DLD). You will still have to pay your real estate agency two per cent of the property value as fees for their services.
Note that DLD charges transfer fees at four per cent, in which two per cent is to be paid by the buyer and two per cent is paid by the seller.
Another Dh250 is to be paid on the day of the transfer as title deed issuance fees.
To complete the registration of the property with the DLD, you need to pay a registration fee of Dh4,000 if the real estate property price equals or exceeds Dh500,000, or pay Dh2,000 if the property price is less than Dh500,000. This is done after all the money is transferred to the seller.
In case you have a mortgage on the property, you also have to pay a fee for mortgage registration to the DLD, calculated at a rate of 0.25 per cent of the registered loan amount.
For mortgaged buyers of completed properties in Dubai, a down payment of 25 per cent for expats and 20 per cent for UAE nationals is requested to be paid in cash to the seller.
The rest of the amount can be financed by the bank. The 25 per cent down payment is the minimum requirement for expat buyers, so you will have to save or raise this amount before starting the process. Some people opt for personal loans.
Interest or profit rates range from 2.99 - 5 per cent in the UAE depending on the bank. However, before you are granted the housing loan the bank would send a property valuation consultant to value the property and they could charge the buyer from Dh2,500 up to Dh3,000 as valuation fees. This is in addition to the bank mortgage establishment fee, which could be up to to 1 per cent of the loan amount.
Life insurance is compulsory when you take a mortgage in the UAE. The bank will charge you separately from the loan for a life insurance. This insurance is the only way for the bank to guarantee the loan is paid in full in case of death. The amount of insurance varies depending on the age and health condition of the person, and also depends on whether you choose to take the life insurance from the bank, or from an external life insurance provider.
Service charge for developer
The service charge is an amount owners pay yearly to developers to maintain and manage the common areas in the property that includes landscaping, security, cleaners, communal electricity, pest control and building insurance.
The charges are calculated per square feet (sq. ft.); so for every sq. ft. you own on your title deed, you will be charged an amount, for example Dh15 per sq. ft. The amount payable annually is calculated in the month of purchase and you pay the money directly to the developer.
How to calculate the total cost you will incur
1. The property’s stated value
2. Abu Dhabi: 4 per cent of property value while signing MoU and Dh5,000 administrative fee to developer.
Dubai: 2 per cent of property value to real estate agent as service fee, 2% to Dubai Land Department and Dh250 for title deed issuance.
Dh4,000 registration fee if property price is Dh500,000 and above.
Dh2,000 registration fee if the property price is less than Dh500,000.
0.25 per cent of registered loan amount for mortgage registration, if property is mortgaged.
3. Down payment of 25 per cent of mortgage for expats and 20 for UAE nationals in cash to seller.
4. Dh2,500 - Dh3,000 as valuation fees to bank.
5. Up to 1 per cent of loan amount as bank mortgage establishment fee, which could be upto to 1 per cent of the loan amount.
6. Life insurance costs, if property is mortgaged.
7. Service charge on a pro rata basis.
What is pro rata basis?
It essentially translates to "in proportion", which means a process where whatever is being allocated will be distributed in equal portions. If something is given out to people on a pro rata basis, it means assigning an amount to one person according to their share of the whole. So, for example you buy a service, you will be billed based on the number of days you used the service for.
Make sure all the payments you make are going into an Escrow account, not to the developer’s or broker’s account. "When you are about to buy the property, ask for the project certificate from the land department. In the certificate, the project’s name will be mentioned along with the bank in which the Escrow account is created along with the bank account number. Make sure the amount goes to the account mentioned," Al Zarooni said.
What is an Escrow account?
An Escrow account is an account where funds are held in trust whilst two or more parties complete a transaction. This means a trusted third party will secure the funds in a trust account. The funds will be disbursed to the seller after they have fulfilled the agreement. If the seller fails to deliver their obligation, then the funds are returned to the buyer.
This is the process that you need to follow to initiate the purchase and complete it:
1. Get the offer letter
Before you finalise the unit, make sure you ask for an offer letter. The offer letter is like a quotation, with all the details of the unit, like the area, the price, number of bedrooms, payment plans etc.
2. Make the down payment
Once all the finances have been sorted, you need to make a down payment. Make sure you get the receipts and a copy of the reservation form signed by the developer.
3. Sign the Sales and Purchase agreement.
You will then sign a Sales and Purchase agreement (SPA).
4. The developers will then send the purchase for registration to the land department of the emirate.
5. Initial title deed (for under construction properties)
You will then receive the initial title deed. Make sure your property is registered with the land department as soon as possible. “Some developers take seven or eight months to register the property, while others do it in two or three weeks. Push your agent or developer to register the under-construction property with the land department as soon as possible,” Al Zarooni said.
6. Monitor the progress regularly and make sure your payments are made on time, with receipts for record-keeping.
7. Final payment and handover
Before you pay the final amount, you will go for an orientation to see the apartment. If you are satisfied with the development, you can make the final amount. If there are aspects of the construction that were promised but have not been completed you h