With comparatively high yields on property in Dubai the option of taking up a loan and purchasing the property instead of renting can make good sense.
In this article I would like to address the must crucial aspects within the property mortgaging process that you should be aware of and carefully take into account. I will address the points that I deem to be relevant in the chronological order that they are to be tackled while going through the process.
1. Utilize a Mortgage Broker or Compare Yourself
Mortgage Brokers can check the best available rates for you and give you some valuable general guidance in addition to support with paperwork and the like. Also, comparison websites such as souqalmal.com or moneycamel.com show you rates from international as well as local lenders. Do not go for the first available offer.
2. Get Pre-Approval
The first step towards your loan is getting a pre-approval. The requirements for pre-approval include the usual disclosure of the personal financial details (bank statements, salary certificate etc.) and will lead to a preliminary undertaking by the bank to grant a loan up to a certain amount.
Please bear in mind that expats, as per the UAE Central Bank rules, are eligible to loan-to-value ratios (LTVs) of up to 75%, provided that the property value does not exceed 5m AED (else 65% LTV) and that the property is the first property to be mortgaged by the individual. For secondary or investment properties, a maximum LTV of 60% will apply. Also, your total debt service must not exceed 50% of your income.
3. Get Into the Contract Details
Even though it might seem daunting, the loan contract stipulations governing important details like Early Repayment Charges, Fixed or Variable Rate contract, Re-Mortgaging and Mortgage Repayment Options as well as possible ancillary charges are highly essential to be understood prior to your commitment.
Just to give a brief example without going into too much detail: In a regime of by trend rising US-Dollar interest rates – the UAE-Dirham is pegged to the US currency – you should beware of variable rates or short fixed interest periods.
Finally, strongly consider hedging your cross-currency risk in case you have substantial parts of your disposable income stemming from abroad (outside US-Dollar sphere).
4. Go House-Hunting
Once you have your loan offer document at hand, (and only now), it is time to look for a suitable property. Besides not being taken seriously by brokers and sellers, you risk losing money should you be daring enough to make a downpayment prior to being pre-approved by your bank.
5. Consider Additional Fees and Expenses
Whereas the attribution of the costs associated with the transaction can be freely negotiated by the parties, it is typical for the buyer to bear the transfer fee payable to the Dubai Land Department (4%) as well as an administrative fee of between 2,000 AED and 4,000 AED. Broker fees are usually distributed evenly among the parties while the mortgage registration fee of 0,25% is on the buyer.
Further, a possible necessity for further alterations or fit-outs of the property prior to its letting or usage is to be considered, possibly adding to the overhead of costs.
6. Negotiate and Contract
As with any property transaction, try not to limit your options too early and negotiate wherever possible. Where market conditions allow, make offers below the communicated or assumed „final price“. Once an agreement has been reached with the seller and considering the loan offering limitations, secure the property signing a Memorandum of Understanding (MoU).
While the latter is often provided by the broker, you should not hesitate to retain your own legal counsel, especially if you are not familiar with the local customs and regulations.
Bear in mind that the MoU is binding in principle, granting the security deposit of usually 10% of the property value to the seller even in case of cancellation of contract. Exceptions must therefore be stipulated in the MoU itself. That said, make sure to include a clause declaring the downpayment refundable in case that the bank loan is not finally granted for whichever reason.
At this point, the broker`s commission falls due and the broker holds the security deposit cheque in the name of the seller. As I have pointed out in a previous article, in the buying sphere and with typically larger amounts at stake it is of paramount importance to deal with a competent and respected agent.
7. Final Approval and Transfer of Title
Once the MoU is signed, the seller will request a Non-Objection Certificate (NOC) from the developer and your bank will execute a valuation of the property and thereafter give final consent to grant the loan. If the transaction does not bear further intricacies like the redemption of mortgages on the seller side this should be finalized within one week.
Once this is done, arrange for and attend an appointment with the seller, the broker and the bank`s representative at the Dubai Land Department (DLD) or a registration trustee. During this appointment, all remaining payments are cleared by means of manager`s cheques following which the registration of the title deed and mortgage is procured in the official register.
Although the described process is not excessively complicated by nature, contractual partners residing abroad (especially legal entities) or other non-standard circumstances typically create time constraints that need to be understood and addressed as early as possible within the transfer process to avoid i.e. expiration of necessary documents or similar hitches.
If you liked this article, you can subscribe to my newsletter here.
The author advises institutional investors about property transactions and handles property portfolios in Dubai since the year 2007. Should you have comments or inquiries, please contact the author on author@property-blog-dubai.com.
