With rental prices going up as much as 75% in some areas of Dubai over the last 12 months many expats are wondering if they’d be better off buying. This week I take a look at the Dubai property market and try to help you come to some conclusions of your own.
It has only been possible to legally own property in U.A.E. as an expatriate since 2006 when the legislation announced earlier in the decade was passed. Whether you are buying as an investment or as somewhere to live there are several important things you should know before jumping in.
Firstly, if you are not Muslim you should be aware that you are buying a property in a country where Islamic law governs property transactions. You should obtain independent legal advice on how this this may affect you and potentially your heirs should you die whilst owning the property. This is important as the distribution of your estate may not go according to your Will.
With such an embryonic market rules are changing on a regular basis. For example, last year there was concern about the market overheating. As a result, the Central Bank of U.A.E. issued a new rule limiting the amount of money that could be borrowed to buy a house as a percentage of the property value. This was followed up later in the year with a doubling of the fees charged by Dubai Land department for registering change of ownership and a virtual ban on offshore companies registering Dubai properties in their name. So the situation is fluid.
Whether you are buying the property for investment purposes or to live in the buying process is the same. You make an offer and if it is accepted you will need to pay a reservation deposit (usually 10% of the purchase price). This is non-refundable if you back out so you must be sure you really want the property. If you need finance should get bank approval before paying this deposit.
Assuming no finance is required, you should conduct sufficient due diligence on the property, developer and seller before meeting at the Land Department to hand over payment and have the property registered in your name. At this point a new Title Deed is issued for the property in your name for your records. The whole transaction could be completed in a few days.
The process is slightly different if the property has been purchased off-plan and this is the first time a Title Deed will be issued for the property in which case you should follow the instructions of your lawyer or real estate agent.
If you need finance the process will be longer as references and other documents will be required by your lender [subject of next week’s post.]
That’s the Background and Process but Should I do it?
So how would buying a property benefit you? I guess the first question I’d have is: are you buying a home for your family to live in, or is it an investment? These are very different propositions and need to be considered separately. Secondly, will you need finance to buy the property? Buying a property is a major financial decision for most of us, so you need to consider your personal circumstances before entering into any property transaction. If you are unsure about any aspect of your purchase you should seek expert independent advice be it legal, financial of tax advice.
If you are buying for cash the returns generated on property are currently much higher than bank deposit rates, yields in the most desirable locations are 6 to 7% compared to bank deposit rates of under 1% and there is the potential for capital gain.But of course there are risks e.g. you may be investing every penny you have in one asset which is risky, the property value may go down or it may be burnt down or flooded.
If you are a finance buyer then you need to remember that interest rates are currently at the lowest they have ever been and therefore can only be expected to go up. The big question is when will they go up and no-one knows. This will increase the cost of your borrowing and may reduce the value of property as owners who have over extended themselves try to sell.
As an investment you want to know that the property will be easily let and maintained. A property that is bought to let out is not the same as the property you and your family would live in. There are two sources of return on property: income and capital gains.
For most nationalities, the rental income and capital gains generated from the property is not subject to tax whilst you are resident in U.A.E. This may change if you move to a different country. For example, if you are resident in UK for tax purposes you are taxed on your worldwide income and capital gains, of which rental income or a property sale in Dubai would be a part.
In Dubai, RERA (Real Estate Regulatory Agency) oversees the amount of rent that can be charged for a property and how much it can be increased by annually based on RERA’s own rental index. RERA also assists in resolving disputes between landlords and tenants. In Abu Dhabi the rent cap has recently been removed which gives landlords a free hand.
The Family Home
No more rent; no more worries about being evicted because the landlord’s ‘brother’ is returning to U.A.E. or how much the rent will increase next year. Maintenance is your own responsibility so you’ll have to budget for that but there’s no more waiting for approval from the landlord before the work is done. You can also make those design touches you’ve always wanted and invest in things like landscaping and home improvements, which tenants don’t normally do. Buying a family home is as much a financial as an emotional decision.
However, expatriate life can be unpredictable at times so whilst there is a growing number of people that choose to buy, these people tend to be those who run their own businesses and/or long term residents with some self-determination. Those on shorter term contracts or who only see themselves as temporary residents of the country would need to be sure that they would recover the costs of purchase before making a long term commitment and substantial capital investment in the country.
Next week I cover the topic of property finance. Please let me know if you have any questions, comments or concerns.