The UAE, with emirates like Dubai, has become a global hub for foreign investors. With its diverse choice of properties, a healthy return on investment (ROI), and regulated market, the country takes pride in being a focus of interest in the real estate market.
The change in the trend of foreign investments can be credited to the initiatives the Dubai Government took. In 2002, when the government introduced freehold property ownership in Dubai for foreigners, a pivotal turning point for the real estate market was achieved.
Now, whether it is a villa for sale in Sharjah or a condo in Dubai, the blazing UAE real estate market tops it all. With foreigners being heavily reliant on the market, one core question in terms of buying property in the UAE stays consistent. The looming thought about monetary investment or expenses.
If you are one of the expats in the UAE contemplating the idea of either investing or buying a property in the UAE, wondering about “how expensive it will be,” then read on as we explore that thought.
Rules for buying property in the UAE
Before diving into the finances, it is essential to take a look at the rules of buying real estate property in the UAE. In terms of investing as a foreigner in the UAE real estate market it is imperative to remember that expats’ property ownership is available in only two categories – freehold and leasehold. The rules for ownership differ in each emirate but the core essence is the same.
FREEHOLD VERSUS LEASEHOLD PROPERTY OWNERSHIP FOR EXPATS
Let us first take a look at the two basic ownership options available to foreigners interested in buying property in the UAE.
Leasehold property ownership
As a foreigner, you can buy a leasehold property owning it for up to a period of 99 years or less, depending on the duration stipulated in the leasehold contract. This form of purchase only allows buyers a property right, not the land it has been built upon.
Foreigners can receive a mortgage from lenders operating in the UAE, but terms and conditions may apply. For example, expat investors can expect to pay a minimum down payment of 20% to 25% of the mortgage value, along with associated costs.
Freehold property ownership
Another option for Expatriates is to buy property in the form of freehold. In this type of ownership, buyers have the means to own both the unit and the land it stands on. However, it is crucial to note that foreigners can only buy freehold property in designated areas.
Expatriates can also get a mortgage from lenders operating in the UAE, but conditions may apply. For example, expat investors can be expected to pay a minimum down payment of 20% to 25% of the mortgage value in addition to the associated costs.
Expenses of buying property in the UAE
The property prices may vary depending on where a foreigner decides to buy a villa in the UAE. One of the most common locations for foreigners are Dubai and Sharjah. With a villa for sale in Sharjah and one in Dubai holding equal lucrativeness, the choice can be a tough one.
The expense of buying property in the UAE can be broken down as follows;
Property registration fee – for properties that are valued below AED 500,000 the costs will be AED 2000 + 5% VAT and for properties valued above AED 500,000 it will be AED 4,000 + 5% VAT
If you are planning to buy a villa in Dubai then keep in mind that every purchase must be registered with the Dubai Land Department (DLD) within 60 days of completing the transaction. The acquisition will become void if the transaction is not registered within 60 days.
An interesting thing to note here is that, in theory, the 4% DLD charges are divided 50/50 between buyer and seller, while in practice, the buyer pays the complete 4% to the DLD.
The buyer will also bear the costs of the property registration fee. If the villa is purchased via a bank loan, the buyer will also be paying an additional fee of 0.25% of the total loan amount to the DLD in order to register the mortgage against the property. However, if the buyer invests in cash, this expense will not be applicable.
Agency fees – For a real estate agent, the fees will be 2% of the purchase price and 5% VAT, and the Conveyance Fee will be approximately AED 6,000 to AED 10,000. When an investor engages the services of a real estate agent, the pricing for a property purchase will rise by 2%; however, having the right agent can make the transaction easier.
Conveyance fee – is another applicable cost for a buyer when conveyancer services and support are utilized. The amount tends to range from AED 6,000 to AED 10,000. A conveyance ensures that all legal terms and contracts have been accurately written as per UAE law, thereby protecting the interest of all the parties involved.
Mortgage fees – The bank mortgage arrangement fee will be 1% of the loan amount and 5% VAT, and the property valuation fee will be between AED 2,500 and AED 3,500, along with 5% VAT. Buyers who complete the purchase with a mortgage with the above payments must pay the bank. Some banks allow the buyers to add these upfront costs to their mortgage to ease the burden associated with initial financial outlay.
Initial Deposit – For both primary and secondary market transactions, the buyer is first required to deposit an amount to secure the purchase. If an investor buys ready property in the secondary market, then the initial deposit will be 10% of the purchase price payable to the seller via cheque.
Insurance Fees – The home and contents insurance is approximately AED 1,000, and life insurance is approximately 0.4% – 0.8% per annum on the decreasing loan balance.
To make the understanding of the expenses easy, let’s consider an example. If the cost of a villa is AED 1 million, then the buyer will apply for a mortgage with an initial payment of 25% of the total cost; in this case, that would be AED 250,000.
The additional charges, along with the registration procedure in the scenario, will be 10% of the total price, which is AED 100,000. Therefore a buyer needs to save an initial amount of AED 350,000. One way through which the saving is possible is by saving AED 48,000 in a year over the following seven years (the collection period can be decreased if the annual amount of savings is increased).
The investment costs of buying a property in the UAE will differ with each emirate. However, the core buildup for the costs will remain as described. Before making an investment, however, be sure to take a look at all the available options. Safe Investing!