Buying property in Dubai
In the past, foreign nationals were reluctant to purchase property in the Middle East. Deterred by a history of violence and instability in the Arab World, and discouraged by national laws in many countries that limit foreign ownership, expats looked elsewhere for second homes or real estate investments.
In 2002, however, Dubai’s crown prince stepped outside of the box when he issued the Freehold Decree, formal legislation that allowed foreigners to buy property, sell property, and lease or rent property at their own discretion.
The decree was designed to increase international investment and put the emirate on the map as a global hotspot.
With no special permission needed or hidden hoops to jump through, buying property in Dubai became easy and potentially profitable for foreigners. With the rising cost of rental in Dubai, and a healthy property market that looks set to continue growing, buying property is becoming an increasingly attractive prospect for expats living in Dubai.
The purpose behind a purchase
Before perusing the market, it’s necessary to pinpoint the exact reason for purchasing property – either for investment or to live in. The purpose behind a purchase can greatly affect what type of property one should consider.
If investing, expats will ultimately be renting the accommodation; thus it's necessary to do some research and find out what kind of property has the highest rental yield. For example, one-bedroom apartments have higher yields than large villas; thus even though the luxurious lure of owning a villa in Dubai is tempting, it is a better business decision to purchase an apartment.
Help with house-hunting
It is best to purchase property in Dubai from a developer, or to enlist the services of a real estate agent. It is important to do background checks and confirm the reputation of both entities, though most operate with a high level of integrity.
If purchasing from a developer, chances are the new home may not even be built yet. Thus, expats interested in these endeavours should take care to visit presentation centres and show homes to get an idea of what to expect.
In most cases, whether dealing with a developer or a real estate agent, a fee of between two and five percent of the selling price is expected to be paid out in addition to the property price.
It is also advised to hire an attorney to aid with the purchasing process, though this is not a formal requirement in Dubai.
The purchasing process
In order to purchase property in Dubai the buyer must be over 21 years of age.
The first step in purchasing a property in Dubai is making an oral offer to the seller. Once this is accepted, a formal sales contract is drafted and agreed upon between the parties; a deposit is made, the buyer obtains financing, the seller ensures that the property is not encumbered by anything that goes against what has been stipulated, final payment is made or a payment plan is solidified, and eventually the deed is transferred.
There are slightly different sets of protocol depending on whether one purchases property from a developer, called an “off-plan” purchase, or purchases property from a private seller, called a “resale” purchase.
It should be noted that often times, a seller will require that an expat has been “pre-approved for home financing” before signing the sales contract.
Purchasing “off-plan” property in Dubai
When purchasing property direct from a developer – an “off-plan” purchase – expats will need to submit a completed reservation form with their passport. The reservation form typically summarises the basic terms and conditions of the sales agreement, the details of the payment plan, and the buyer and seller’s personal details.
A reservation deposit, between five and 15 percent or what has been otherwise stipulated, is then paid and the formal sales and purchase agreement is drafted.
This document is largely similar to the reservation agreement, but it also commits both the buyer and seller to the deal. Some developers require that an expat pay up to 20 percent of the purchase price of the property before they draft this agreement, thus it is recommended to agree when this document will be signed at an early stage.
If purchasing property that has yet to be completed from a developer, be sure the purchase agreement includes the completion date and the compensation awarded if the property is not completed by that time period. Furthermore, if the property is to be furnished, decide on an appropriate deadline for furnishing.
To complete the process of buying property in Dubai the buyer must transfer the deeds. This is done at the developer’s office if the property has yet to be completed or at the Land Department offices in Deira if the property is already registered. The buyer must obtain financing and pay 100 percent of the property price at this point.
It is then normal protocol that the buyer can inspect the property and make a “snag list” of any issues that the developer must address.
Purchasing “resale” property in Dubai
If purchasing from a private seller – a “resale” purchase – the buyer and seller will need to agree on a Memorandum of Understanding (MOU), a document that outlines the terms and conditions of the agreement. This document also details the date of the final transfer of funds from the buyer to the seller. It is not binding.
The buyer then puts down a deposit, usually in the amount of 10 percent of the property price, or alternatively whatever has been negotiated. This amount is often non-refundable unless for some reason the seller is no longer able to convey the property to the buyer. It is also necessary to pay the real estate agent’s commission at this time.
After obtaining financing, the formal transfer of deeds can take place. Expats must pay 100 percent of the property price before this can happen.
As in the case of an “off-plan” purchase, it is then possible to inspect the property and make a “snag list” of any issues that the seller must address.
Getting a mortgage as an expat in Dubai
Prior to the market crash of 2008, it was fairly easy for expats that had a high credit rating to obtain a mortgage in Dubai that covered nearly 90 percent of the property cost. However, since the recession, banks have tightened their lending procedures, and now it is not unusual for buyers to have to put down between 20 to 50 percent of payment for their property in cash.
Furthermore, many are struggling to get approval at all. For those that do, expats find that there is often more red tape and paperwork than they would have to contend with back home.
Some mortgage lenders even require collateral in the form of another property. This precaution is taken as a result of past instability in the region.
Expats will need to present lenders with the following documentation:
- Passport and copies
- Proof of residence
- Proof of address
- Salary certificates or evidence of regular income
- Bank account statements for three to six months
Mortgages are paid back in monthly instalments, with 15-year plans being the most popular. The maximum length of a mortgage plan in Dubai is 25 years. Mortgage repayments, combined with any other monthly expenses, must not exceed 35 percent of net monthly income, and the total mortgage amount is limited to a figure no more than 60 times the monthly combined household income.
Many of the institutions that offer mortgages also offer the option for “pre-approved financing”, which allows the buyer to have their loan approved prior to choosing their property in Dubai. This expedites the overall process and satisfies those sellers that require financing before agreeing to sign the MOU or purchase agreement.
As of 2008, mortgages have to be sold by registered financial institutions.
It is possible to arrange a mortgage from overseas.
Fees and taxes on property in Dubai
In addition to legal fees, and fees that must be paid out to the developer or the estate agent, there may be land registration fees and maintenance fees that must be paid.
For new-build developments expats can expect to pay roughly two percent on land registration fees.
The maintenance fee, which covers the upkeep of the building, gardens and shared facilities, can either be a fixed rate or a rate depending on the size of the property. If purchasing a large property, this can become a significant cost, especially if it is unforeseen and if one year’s payment is demanded upfront.
The above is not legal advice and as property laws may change on a regular basis expats considering buying property in Dubai should first seek appropriate legal advice.