With an ever increasing population and property being built at a rapid pace, many people choose to buy UAE property, either as an investment or to live in. Compared to many mature markets in other countries, the UAE is in its infancy, as expats have only been able to buy property since 2002 and still only in designated areas. Here is a list of issues to consider…
- Can you afford it? The first step should be to consider if you can afford to buy the villa or apartment that you want. The UAE Central Bank announced a mortgage cap of 75 percent for expats and 80 percent for UAE nationals in late 2013. Speak to lenders or a mortgage broker to find out if your income is sufficient to borrow and service the mortgage you will require. Lenders will consider a multiple of salary, less existing commitments but do not generally take into consideration any projected rental income from the property. Generally mortgage repayments, combined with any other monthly expenses, should not exceed 35 percent of net monthly income.
- Do you have a big enough deposit? Whilst it may be possible to put down just 10 percent of the purchase price as security, you will have more mortgage options if you have a larger deposit.
- Who is the builder or developer? Of particular relevance, if you are buying off-plan, as many people have been waiting for years for an apartment or villa to be completed. Has the builder a good reputation for quality? Will they hand over the completed property in good time?
- Does your lender accept them? Before committing to purchasing, find out how many lenders will accept both the developer and the development as security. Even if you do not require a mortgage, or you are happy with a limited choice, bear in mind that this could limit the option for buyers when it comes to reselling, thus making it harder to sell on.
- Are you being charged a competitive interest rate? Do you have the option of a fixed rate for a few years to allow you to budget? Can the rate change whenever the lender feels like it or is it linked to EIBOR (Emirates Interbank Offered Rate)?
- What are all the charges? You are likely to be charged a number of different fees from your lender, developer’s fees and real estate broker fees. These can typically add up to five per cent, or more, on your purchase price.
- What fees could you expect later? Not only are there fees for setting up a mortgage, what will the lender charge if you want to repay it early? Exit fees vary, but can be substantial.
- Does the lender offer a choice of repayment methods? Whilst all lenders offer the traditional capital and interest (repayment) mortgage, some have the option of an interest only mortgage. Whilst you pay less each month you have to make your own provision to repay the mortgage capital, but it can be suitable in certain circumstances.
- Do you want standard or Islamic finance? A number of lenders offer sharia-compliant mortgage alternatives, also known as Islamic mortgages. Most are set up on a Ijara basis which is a buy and lease back arrangement, but these can be useful if buying a property off-plan as no payments are made until the property is completed.
- Do you need legal advice? Whilst there is no requirement for a lawyer to be involved in the transaction, it is wise to take professional advice when you are spending so much money. A lawyer will read through the contracts and ensure that you fully understand the implications of what you are signing as well as giving guidance where appropriate.
Although there is development across the UAE, from Abu Dhabi to Ras Al Khaimah, the majority of market activity is still concentrated in Dubai. Each emirate has its own legal and judicial systems, land registry department and rules and regulations as to who can buy, and on what basis. The comments above apply to all emirates, although the lenders active in a particular emirate and the mortgages offered will vary.
Keren Bobker is an Independent Financial Adviser at Holborn Assets and writes at financialuae.me