Buying property in Dubai is a fairly easy, if paperwork-heavy, process. With the rising cost of rent in Dubai and a healthy property market that looks set to continue growing, buying property is undoubtedly 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 out the accommodation, and it's therefore 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, so 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 in Dubai
It is best to purchase property in Dubai from a developer or to enlist the services of an estate agent. Expats should 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. Expats interested in these endeavours should visit presentation centres and show houses 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 Dubai
The first step in purchasing a property in Dubai is making a verbal offer to the seller. Once this is accepted, a formal sales contract is drafted and agreed upon between the parties, and 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, and the final payment is made or a payment plan is solidified. The deed is then transferred.
There are slightly different sets of protocols depending on whether one purchases a 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 oftentimes, 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 directly 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 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 pays up to 20 percent of the purchase price of the property before they draft this agreement, so it is recommended to agree on when this document will be signed at an early stage.
If purchasing property that has yet to be completed from a developer, be sure that 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 the 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. However, the document 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 estate agent’s commission at this time.
After obtaining financing, the formal transfer of deeds can take place. Buyers 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
There are strict requirements that must be met when taking out a mortgage and it is not unusual for buyers to have to put down around 25 percent of the payment for their property in cash, if not more. Lenders adhere to certain affordability guidelines and will make a decision on how much to lend based on the lender's financial situation in terms of monthly income and expenses. Mortgages are paid back in monthly instalments. The maximum length of a mortgage plan in Dubai is 25 years.
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.
Fees and taxes on property in Dubai
In addition to legal fees, and fees that must be paid out to the developer or the real 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 dependent 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 up front.
Properties are not taxed in Dubai, but expats may be liable to be taxed by their home country on income generated from selling or renting out their property. For this reason, it's best to consult a tax professional.
*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.