How to finance property purchases in Dubai? A guide to available financing options

Buying property in Dubai can be a lucrative investment or a rewarding place to live in a rapidly developing city. However, understanding the available financing options is crucial for completing such a purchase. This guide will help you better understand how to finance a property purchase in Dubai in compliance with current laws, both for residents and non-residents.

1. Purchasing property with cash

Buying property with cash is the most straightforward option. It only requires sufficient funds to cover the property’s price and transaction costs (e.g., notary fees, registration fees).

Advantages:

No financial obligations or interest payments.
Shorter transaction process.
Greater flexibility in negotiations with developers, who often prefer cash buyers.

Disadvantages:

Requires substantial savings, which is not always feasible for most investors.

2. Developer financing options

Many large developers in Dubai offer flexible payment plans, which can be an attractive alternative to traditional mortgages. Here is an example of a typical payment plan:

Down payment (20%): A 20% payment of the property’s value is made on the day of reservation.
First installment (10%): A 10% payment is required 6 months after the reservation date.
Second installment (10%): Another 10% payment is due 12 months from the reservation date.
Third installment (10%): A 10% payment is required 18 months after the reservation date.
Fourth installment (10%): A further 10% payment is due 24 months after the reservation date.
Final installment (40%): The final payment of 40% is made upon completion of the property.

This plan allows for spreading payments over the construction period, reducing the initial financial burden on the buyer.

3. Mortgage in Dubai

For those who cannot or do not want to buy property with cash, the most common financing option is obtaining a mortgage. In Dubai, both residents and non-residents can apply for a mortgage, although the terms may vary depending on residency status.

a. Mortgage Terms for Dubai Residents

Dubai residents can apply for a mortgage under more favorable conditions than non-residents. Standard terms include:

A 20% down payment for the first property purchase (currently regulated by the Central Bank of the UAE).
A maximum loan term of 25 years.

Banks also require residents to provide:

A salary certificate or proof of regular income.
A credit history check (often reviewed by AECB – Al Etihad Credit Bureau).
Sometimes additional security, such as life insurance.

b. Mortgage Terms for Non-Residents

Non-residents can also obtain a mortgage in Dubai, but the terms are usually more stringent. According to the UAE Mortgage Law, non-residents must put down at least 20% of the property purchase price as a down payment (for first-time buyers) if the property is valued at up to AED 5 million. For properties worth over AED 5 million, the minimum down payment is 30%.

However, some banks in the UAE only finance up to 50% of the property value for non-resident applicants. As a result, non-residents may be required to contribute a higher down payment to secure a mortgage.

c. The Mortgage Process

The process of obtaining a mortgage in Dubai involves several stages:

Submitting documents – The bank will require financial documents and information about the property.
Credit assessment – The bank will assess your creditworthiness based on income, liabilities, and credit history.
Property valuation – The bank will conduct a valuation of the property you intend to buy.
Signing the mortgage agreement – After approval, the mortgage agreement is signed, and the bank starts disbursing the funds.

4. Costs associated with property financing in Dubai

In addition to the property price, there are several additional costs to consider when financing a property purchase in Dubai. Here is a breakdown of common one-time costs and fees payable during the property purchase process:

Land Department Fee: 4% of the property value plus a 580 AED administration fee. This fee is paid to the Dubai Land Department for the property registration.
Registration Fee: 4,000 AED for properties valued over 500,000 AED, plus 5% VAT. This fee applies to registering the property in the buyer’s name.
Mortgage Registration Fee: 0.25% of the loan amount, plus a 10 AED administration fee. This fee is for registering the mortgage with the Dubai Land Department.
Real Estate Agency Fee: Typically 2% of the property value, plus 5% VAT. This fee is paid to the real estate agent facilitating the transaction.
Bank Arrangement Fee: Ranges from 0.5% to 1% of the loan amount, plus 5% VAT. This fee covers the bank’s processing of the mortgage application.
Valuation Fee: Between 2,500 AED and 3,000 AED, plus 5% VAT. This fee is charged by the bank for assessing the property’s market value.

These fees are essential to account for when calculating the total cost of a property purchase, as they are payable upfront and are separate from the property’s purchase price.

How to finance property purchases in Dubai - conclusion

Buying property in Dubai requires careful planning of financing. There are various financing options available, from cash purchases to mortgages and flexible payment plans offered by developers. It’s important to thoroughly analyze all options, consider your financial capacity, and familiarize yourself with the applicable legal and tax regulations.