In 2002, Dubai’s Crown Prince issued a Freehold Decree, or a formal legislation allowing foreign nationals to buy, sell, and lease or rent a property at their own discretion. With no special permissions required, it is easy and profitable to buy a property in Dubai. Having said that, buying property in Dubai has its own set of challenges. In this article, we will walk you through the process so that you can tackle the risks of buying property in Dubai.
Determining the Purpose
As basic as it may sound, the first challenge is to determine why you want to buy property in Dubai. Are you planning to live there? Do you intend to lease it? Important decisions like these, and many others, will help you determine the type of property you should consider buying.
If you are buying a property to live in, then you must ensure that it is conveniently located to your place of work or regular visit. If you plan to live with your family/kids, then you must inquire about schools and play areas nearby too. On the other hand, if you are planning to lease it, then assess the rental yield of the property and demand for rental apartments in the area before buying.
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Finding the ideal property
The second challenge is finding the right property for your investment needs. You can search online for a property on sale in Dubai or talk to a local estate agent who can help you with the same. Many investors also approach developers to invest in upcoming projects. This, of course, should be done with due diligence.
Remember, the agent or developer might quote you a price that’s slightly greater than the price of the property.
The Buying Process
The third challenge is being aware of the entire buying process so that you know what needs to be done and when. Here is a quick look at the process of buying Dubai properties:
- Make a verbal offer to the seller
- On acceptance of the offer, get a formal sales contract drafted and agreed upon
- Make a deposit
- The buyer obtains a loan if needed
- The buyer makes the final payment or an agreement on a payment plan is made
- Deed is transferred
There can be minor variations to this process depending on the type of property and seller which needs to be addressed accordingly. The buying process can vary when you buy a property from a developer (off-plan) or a private seller (resale).
‘Off-Plan’ Purchase
Off-plan property refers to a property being sold prior to its construction. In such cases, the following are basic steps in the process of purchase:
- Buyers need to submit a completed reservation form along with their passport.
- Next, a reservation deposit needs to be made
- Post this, a formal sales and purchase agreement is drafted
Some points to remember:
- Check the amount of reservation deposit required
- Ensure that the purchase agreement has a completion date and compensation amount included if the project is not completed on the date specified.
- The transfer of deeds must be ensured after you make the 100% payment
‘Resale’ Purchase
Resale property refers to property that has been previously owned, that is, previously purchased and put on sale by the buyer; ‘for resale’. The following are basic steps in the process of purchasing such property:
- A Memorandum of Understanding (MoU) is drafted based on the terms and conditions of the agreement.
- A deposit needs to be paid, as agreed.
- In most cases, the estate agent’s commission is paid at this time.
- Finance can be obtained now (if you don’t have a pre-approved housing loan offered by any bank)
- Final payment is made
- Deed is transferred
Some points to remember:
- Ensure that all essential points are covered in the MoU
- The deposit paid is non-refundable. The seller can return the deposit if he is unable to complete the sale for many reasons.
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Availing a loan
Most investors with a good credit record get a pre-approved housing loan offered by banks. This is the ideal scenario since the entire process becomes quicker and less cumbersome. If you don’t have a pre-approved offer, then you can approach banks for a housing finance. Typically, the following documents will be required:
- Passport
- Proof of residence
- Proof of address
- Salary certificates or proof of current income
- Bank account statements of the last three to six months
Some points to remember:
- You can get a loan for up to 25 years
- Your monthly repayments (loan instalments and any other fixed monthly expenses) should not be more than 35% of your net monthly income. (You should check with the bank before applying)
- You could also have an overseas loan to buy a property in Dubai
Taxes and Fees
The structure of fees and taxes is highly simplified as compared to other international real estate investment cities. Here is a broad list of fees and charges involved in a buying property in Dubai:
- Transfer Fee
- Registration fee
- Mortgage registration fee
- Mortgage processing fee
- Estate agency fee
- Conveyancing fee
- Valuation fee
- Oqood fee, for off-plan properties
The Oqood fee is paid by the buyer to the developer of the property and is equal to 4% of the original price of the property.
It is important to note that some of these charges might not be applicable to you (like mortgage-related charges, if you are not availing a loan). This is merely a basic list of charges applicable.
Summing up
Before you buy property in Dubai, it is essential to understand the challenges that you might face, and the best way to face them is to be informed. Due diligence is key to ensuring a smoother experience in real-estate investment and property purchase. Research well and spend time on understanding the market and seeking advice from experts before you start looking for a property for sale in Dubai.
