Ten things to know before buying property in the UAE

Homebuyers should identify their objective, understand the mortgage cap, work with a licensed broker and study operational costs, experts say

Jumeirah Beach near the Burj Al Arab hotel in Dubai. Many domestic and international buyers are entering the Dubai property market for the first time, experts say. Pawan Singh / The National

The UAE property market has recovered well from the coronavirus-induced headwinds on the back of economic support measures and government initiatives such as residency permits for retirees and remote workers, in addition to the expansion of the 10-year golden visa programme.

The value of property deals in Dubai more than doubled last year and broke a 12-year record in terms of sales transactions. The emirate registered 61,241 sales transactions worth Dh151.07 billion ($41.13bn) last year compared with transactions worth Dh71.87bn in 2020.

This made 2021 the best year for total transactions since 2013 and the highest in value since 2009, according to listings portal Property Finder.

“Activity in the Dubai market was further fuelled by the excellent value that the market continues to offer relative to other global destinations,” says Richard Waind, group managing director of broker Better Homes.

“This is a great time to buy a property in Dubai. A growing population and strengthening economy is pushing the Dubai real estate market from strength to strength. We are seeing plenty of domestic and international buyers entering the market for the first time.”

We spoke to experts to compile a list of things to know before buying property in the UAE.

Identify your objective

Before investing in any property, buyers need to clearly understand the aim of the the purchase because this will help them to determine the type of property to buy, says Ayman Youssef, vice president of real estate company Coldwell Banker UAE.

“Ask yourself questions such as: are you an end user or an investor; what’s the investment time frame you’re looking at; what is the kind of return on investment you are expecting? Based on the answers, you will be able to conclude on several factors such as whether you want to opt for a ready or off-plan property, the area to choose, amount of investment and more,” Mr Youssef says.

Do your research

It’s important to thoroughly research and assess the market before buying a property, experts say.

“Take all factors into consideration. What are the rental yields you can expect from the property? Is the area in demand and will it be in the future? Is the community well developed and well connected? What are the amenities?” says Paul Christodoulou, chief executive of Aqua Properties.

Set a budget for yourself and research what kind of units are available, their prices as well as the payment plans being offered, Mr Youssef says.

Finally, choose the property that ticks all or most of your requirements, Mr Christodoulou says.

Freehold or non-freehold

The Dubai government has designated large parts of Dubai as freehold areas, where foreign buyers can own property outright.

“There remain several non-freehold zones, most notably Jumeirah, Umm Suqeim and Al Barsha that are open for purchase only to GCC nationals,” according to Mr Waind of Better Homes.

“However, in recent years, pockets of non-freehold areas have been developed and are now open for purchase to all nationalities, such as La Mer and City Walk in Jumeirah and Madinat Jumeirah Living in Umm Suqeim.”

Buyers should also be aware of a third type of land status known as “leasehold”, in which international buyers can purchase a long lease on the land and property for up to 99 years, as is the case in Green Community Dubai Investments Park, he says.

Get your finances in order

First-time buyers should also understand that a deposit is not the only fee they need to think about when purchasing property in the UAE, says Lewis Allsopp, chief executive of Dubai broker Allsopp & Allsopp.

There are transfer fees, agency fees, sales progression fees, mortgage arrangement fees and mortgage insurance fees that people need to take note of before making their purchase and calculating their return on investment, he says.

“I advise you to speak to a mortgage adviser to get all the information you need – they can talk you through all costs involved in buying your first property in Dubai,” Mr Allsopp says.

Fees linked to the transaction are largely paid by the buyer and typically add up to between 6 per cent and 7 per cent of the purchase price, Mr Waind says.

The DLD fee is 4 per cent of the purchase price, and you need to pay 0.25 per cent of the loan amount if you are taking a mortgage, he says.

“To register the purchase, there is a further fee of Dh2,000 for a property valued below Dh500,000 and Dh4,000 for a property priced above that. Your broker is likely to charge 2 per cent, unless you buy off plan where the developer will pay your broker, and you may pay further professional fees to a mortgage broker and conveyancer,” Mr Waind says.

One of the great advantages of investing in UAE property is that there are no capital gains or income taxes to take a bite out of your returns, he says.

Also, include in your budget other potential costs such as furnishings, move-in costs and utility charges, among others, Mr Christodoulou says.

Know operational costs

While researching and scouting for different property options in the UAE, always check on the operational cost involved, Mr Youssef says.

These would include any service charges and maintenance fees, all of which will vary based on the type of property you bought.

“Villas and town houses have lower maintenance and/or service charges compared to an apartment or a serviced apartment. These charges will also differ based on the area and amenities provided. These operational costs are added over and above the property value and are charged annually,” he says.

Work with a licensed broker

Buyers must work with a reputable and knowledgeable broker who specialises in the market segment they are looking to buy a property in to ensure their rights and investment are protected.

When choosing an agent to entrust with your property search, make sure they are certified by the Real Estate Regulatory Agency, Mr Allsopp says.

A simple way to check if an agent is Rera-certified is to ask to see their broker registration number (BRN), he says.

“You want to be certain that the information you are being given about the market and the pricing is accurate. Rera-qualified agents have access to data from the Dubai Land Department to ensure this.”

Buyers should avoid freelance agents because they will have no legal recourse should such an agent act against their best interests in the transaction, Mr Waind says.

Understand the buying process

It is imperative that you understand the entire sale process in Dubai from start to finish.

Ask your broker to talk you through all the steps involved – from how to make an offer, the negotiation process, the paperwork required, obtaining the no-objection certificate, transfer appointments and the handover, Mr Allsopp says.

“You are about to take a very large leap and spend possibly the most money you have ever spent. Taking time to fully understand the systems in place will allow you to make informed decisions as you move through the process,” he says.

What's the mortgage cap?

Mortgage buyers in the UAE currently enjoy favourable mortgage rates, but they should be aware that there is a loan to value limit, often referred to as the mortgage cap, of 80 per cent for first-time buyers, set by the Central Bank of the UAE, Mr Waind says.

This means a first-time buyer will need a minimum deposit of 20 per cent and this rises to 40 per cent for those buying a second home or a property valued at more than Dh5 million, he says.

“Buying an off-plan property from a developer can be a good way of securing a unit today with a lower down payment, typically 10 per cent, allowing you to make step payments for up to 40 per cent to 60 per cent over the following year or two and then taking out a loan on handover for the remaining amount,” Mr Waind says.

“If buying a property with a mortgage, ensure there is a valuation clause in Form F. Your bank will want to conduct a valuation on the property that they are lending you money on, so ensure your Form F states that and gives you the chance to walk away if the valuation doesn’t come within a certain agreed percentage of your offer.”

Ask for benefits from developers

Nowadays, developers in the UAE offer good benefits with property purchases in the UAE, according to Mr Christodoulou.

“You can avail of residency visa and business licence with some investments, in addition to attractive payment plans and guaranteed return on investment, among others. Furthermore, of late, you can opt for fractional ownership,” he says.

Plan your exit scenario

Whatever your reason for buying a property, always keep in mind an exit scenario, Mr Youssef says.

Understand the current property trends and look out for areas that are doing well, as well as up-and-coming communities. It is also worth considering the amenities because these factors will decide the resale value of the property, he says.

“There are many properties that offer attractive prices but the lack of amenities lowers the overall value. These are hidden factors that buyers don’t realise when purchasing a property. It is only at the time of exit that they come to the forefront,” Mr Youssef says.