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Guide to buying property in Dubai
Dubai over recent years has under gone one of the most radical development transformations the world has ever seen.
In 1971 Dubai, Abu Dhabi and five other emirates joined together to form what is now known as the United Arab Emirates after former protector Britain left the Persian Gulf.
The country being rich in oil soon became one of the major trading ports between the east and west offering free trade which provided foreign companies unrestricted import of labour and export capital.
In the early 1990’s after the 1st Gulf war Dubai decided to concentrate on free trade and tourism. The success of the Jebel Ali free zone allowed the city to replicate its model to develop clusters of new free zones, including Dubai Internet City, Dubai Media City and Dubai Maritime City. The construction of the Burj Al Arab, the world's tallest freestanding hotel, as well as the creation of new residential developments have transformed Dubai to one of the worlds must visit tourist hotspots.
Since 2002, the city has seen an increase in private real estate investment in recreating Dubai's skyline with such projects as The Palm Islands, The World Islands and Burj Dubai. However, robust economic growth in recent years has been accompanied by rising inflation rates (at 11.2% as of 2007 when measured against Consumer Price Index) which is attributed in part due to the near doubling of commercial and residential rental costs, resulting in a substantial increase in the cost of living for residents.
Why buy in Dubai?
The all year round weather, tax free haven and liberal immigration laws make Dubai a very attractive place to live indeed. Many foreign investors have already jumped on the band wagon snapping up properties as quick as developers can build them.
Dubai is only 5 hours flying time from the UK and has many international carriers that regularly fly there.
Economy growth
Dubai is growing fast; each year the economy is growing at least 10%. Demand is high for real estate from foreign investors; Developers are offering some great deals and the fact many residents don’t pay any income tax helps support high property prices.
With a 20 year investment strategy under its belt the long-term property market looks rosy. As price for real estate goes up many foreign investors are buying now to capitalise on their investments in the future.
Dubai Residency
The UAE Government has stated that a special category of residence visa will be granted to people buying 'foreigner's' properties. The visa will allow a purchaser to live, but not work in Dubai. Only the Government of the UAE can grant these visas, not the developer or estate agent. Typically these type of visas are issued for 3 years
If you wish to emigrate to Dubai it is always best to have a job lined up as your company will process your work permit application for you. If you are in this position our advice is to contact the UAE embassy to find out more information
Property Law
The freehold property market in Dubai really started in 1998 when the Dubai Marina project was launched. At that time there was no freehold property law, and villas were sold "leasehold", on 99 year leases. In 2002 a decree was issued by the Dubai government granting freehold rights to non-GCC nationals (The GCC is the Gulf Cooperation Council, comprising Saudi Arabia, Kuwait, the UAE, Oman, Bahrain and Qatar.) This provided the impetus that has led to the size and dynamism of Dubai's property market today.
Purchasing a freehold property in Dubai now means that you own the property forever or until you decide to sell it. You are allowed to pass this property to your family for example, and they enjoy the same level of ownership as you do.
Most important for investors, your resale rights are guaranteed, as is your freedom to rent out your property to a third party, though some restrictions apply to individual developments.
You should note that although these are freehold properties, some conditions on their owners apply, because they are "private community" developments. These conditions will restrict what owners can do with their properties, and oblige them to maintain their properties to certain standards, according to the themes and quality of the communities.
When buying an apartment, the nature of ownership is different from that of a villa, because an apartment is a unit in a building. These are normally classed as "common hold". Sale agreements for apartments do, however, usually warrant effective full ownership of the unit, subject to restrictions applying to the building, such as renting out the unit, and making modifications.
Buying off plan
One of the most common ways to buy a property in Dubai is off plan paying a deposit initially and then in instalments through to completion. Payment schedules can range from increments of 10% up to 20%. It is at the discretion of the developer how they structure it.
The benefit of buying off-plan is that re-sales command relatively high premiums therefore reducing any profit margin in the investment considerably.
Who can buy?
Any investor, overseas or resident, can purchase in Dubai’s luxury property developments.
What is a premium?
The amount that you pay above the original price charged by the developer. This can be a percentage of the original price, or a fixed amount. The premium plus the original price is the net selling price to the owner, and does not include transfer fees or commission.
What is a transfer fee and Commission?
This fee is paid to the developer in transferring ownership from seller to buyer. It varies between 1 per cent and 7 per cent of the selling price or original price and so can be a substantial amount, usually paid by the buyer. Normally 2 per cent of the selling price and again the buyer pays, although on occasion the owner may pay 1 per cent of this.
Why do people want to know the original price?
This is the price which the original owner paid to the developer. From this you can work out the percentage premium which is often used as a guide to see if a property is good value or not. In addition, when financing, all lenders need to know the original price, as most will not lend on any of the premium.
What is Initial Deposit?
This applies when buying direct from a developer and is paid to the developer in order to secure the property in your name. It is usually 10 per cent or 15 per cent of the selling price.
What is Holding Deposit?
This secures the property for a period up to one month usually, allowing the buyer time to organise funds through either financing or transferring of cash funds. This deposit is non-refundable and can range from Dh20, 000 to Dh1, 000,000 depending on the property price.
What is a Memorandum of Understanding?
This is a contract made between the buyer and seller to secure the sale. A holding deposit is paid to the agent or seller to make the contract more binding.
If we assume that the term freehold is being used in Dubai in its international sense, then the answer is yes. Freehold usually indicates that the owner of this kind of title enjoys the most superior form of private property ownership. A purchaser can have freehold title in land, in a free standing villa and also for an apartment, the latter kind of ownership is usually called ‘commonhold’ and not freehold.
Can one lawfully sell freehold properties to foreigners in Dubai?
There is no provision in the law that forbids immovable property (except in an auction) from being sold to foreigners in the UAE.
Are there any restrictions imposed on freehold apartments?
Yes, there are some restrictions being imposed in most sale and purchase agreements issued by developers in Dubai; these conditions are to make sure that owners of properties pay their Service Charges in time, especially if they intend to sell their property.
Does the buyer have the authority to sell the property or apartment? If so, when?
If a buyer has not yet become the registered owner of a property, then he can cede (i.e. transfer) his rights in his agreement of purchase under certain conditions to another purchaser but subject at all times to the approval of the Seller. Purchasers, once they are registered owners, are able to sell their property freely subject to all Service Charges and/or penalties having been paid.
How often will the Service Charges increase or will they fluctuate?
It is expected that the Service Charges levied will be reviewed yearly and only if necessary, increased annually. Unless all the owners of the building/dwellings have to pay for an emergency expense, it is not expected that there will be dramatic fluctuations or increases in the Service Charges during the year.
Payment Terms - In general, a deposit representing 10 - 15% of the buying price is required at the contract-signing stage for all new development properties. Each developer will offer a different payment plan.
Payment Terms for Completed Property - Completed property needs to be paid for 100%. The developer will charge a 1-2% transfer fee to put the property contract into your name and the contract will follow in about 2 weeks.
Bank Accounts - Buyers do not need a local bank account to arrange purchases, and Dubai Premier have accounts in the UAE andto help facilitate your transaction.
Purchase Timescales - Purchases normally take no longer than two weeks to complete. It is important to have your funds ready in order to prevent disappointment.
Mortgage Facilities available - There are literally thousands of mortgage options. In the United Arab Emirates, however, the choice of lenders is not as widespread and the options not as attractive as those found internationally. At present, typically you can borrow at 6.5% in Dirhams for the various property developments that are regularly advertised in the local press. Finance can be arranged through overseas lenders if you have assets overseas too. A number of property investors with assets overseas have taken advantage of favourable international interest rates. Contact Interchange to see how we can save you money
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