What You Need To Know About: Property Finance
So you’ve found your dream home in Dubai and now you want to raise a mortgage to help you buy it. Like many things in Dubai, borrowing money for property purchase is a bit different from other places where you may have experience.
If you have a property elsewhere, you may want to draw on some of the equity in that property to buy the Dubai property. If there is enough to buy the Dubai property outright you will be a cash buyer as far as the Dubai transaction is concerned. This may make you more attractive to would be sellers. It also means that you won’t have a major debt in U.A.E., where default has more severe penalties than other areas.
However, unless you are borrowing in US dollars or a currency linked to US Dollar like U.A.E. dirham, there is a currency risk to consider. This is because you are borrowing in one currency to buy an asset in another. Additionally, assuming you are earning in dirhams your outgoings in your home currency will also go up due to the mortgage increasing back home. Unless the property is rented out for more than the mortgage payment you will need to send more money home.
If you are moving large sums of money between currencies it makes sense to shop around for the best exchange rates. Banks rarely offer good value for money but they are convenient. In my experience, the exchange houses offer much keener rates and a few percentage points can save you hundreds if not thousands of dirhams on large transactions or over the course of a year on smaller ones.
If you need finance to buy a property you should be aware of a few things…
Not every lender will lend to you. This has nothing to do with your credit worthiness. It is to do with who your employer is. Large multi-national company employees will find obtaining credit easier than those who work for small locally operated companies. Many banks have lists of companies, the employees of which they will lend to.
Not every lender will lend on every development. Some banks have their favourite developers and will only lend on projects built by them. Exceptions appear to be EMAAR and Nakheel who are on almost every lenders list. However with Nakheel only properties actually built by Nakheel count as they have many sub-developers which are not included. So you need to do your homework before putting an offer in. You will also need to obtain a No Objection Certificate from the developer confirming you can buy the property. There is usually a charge for this.
As an employee you will be expected to provide 6 months bank statements showing your salary credit and a salary certificate. So you’ll need to have worked for the same company for at least 6 months. You will also be asked for personal references. Many banks also ask for your salary to be paid into an account with them. This lets them know very quickly if you move jobs or become unemployed.
You will also be asked to write out a cheque for at least the whole amount of the loan, this will be made payable to the bank. The cheque will be undated, so the bank could deposit it at anytime. Given that it is a criminal offense to bounce a cheque in Dubai, this makes most borrowers very nervous. However, the banks who demand this will not lend the money without this added security. There was speculation in the press last year that this draconian practice would be ended and UAE Law be brought into line with International Law but so far expatriates still face gaol if they bounce a cheque. Quite how the borrower is to repay the loan from prison I don’t know but there it is.
If it is your only property purchase expats can borrow up to 75% of the property value. This means that you will need to find at least 25% of the property value from your own resources plus transaction costs for which you should budget 8-10% of the property value. These included: real estate agent fees (2%), legal fees, land department fees (4%), mortgage registration fee, life assurance, property insurance, maintenance charges, bank mortgage fees (1%) valuation costs and mortgage broker charges.
Your lender will expect you to take out a life assurance policy which will repay the loan in the event of your death. Some banks provide their own whilst others give you a choice of using the bank option or own of your own policies. They will also require you to have buildings insurance and recommend contents insurance too. Mostly these policies are paid for on an annual basis. Don’t forget moving in costs too.
When you have moved in you will also be liable for the services charges that your landlord would have paid on your behalf. Service Charges are for the maintenance of the public areas of the development and they vary greatly from one development to the next. You can expect to pay anything from zero, for a completely undeveloped site to tens of thousands of dirhams a year for some of the developed sites.
There is a lot to consider and this is before you start thinking about which lender to approach. There are many lenders in the U.A.E. but knowing all the latest interest rates and deals, as well as who will lend what to whom is a specialist job.This is where a mortgage broker can be worth their weight in gold. Not only saving you money but also being able to guide you through the process which may not be familiar and taking some of the stress out of buying a property.
So do your sums before handing over any cash to make sure that you have enough on hand. It always makes sense to slightly over budget in these things as often unexpected expenses come along.
As usual if you have any questions, comments or concerns please let me know.