Dubai’s rents are on the rise. By some estimates, rents in the emirates increased by as much as 25 per cent in this past year. With the mounting pressure on renters, many may be considering buying a property not only to save and gain equity, but also to take advantage of an appreciating market.
This argument may initially make sense particularly for long-term expatriates who aren’t planning to leave the UAE in the near future. However, before making this jump into home ownership, it is important to take several points into consideration.
Compare apples to apples. Will you be able to afford a home that is comparable to your current rental home or better? If your calculations are based on a significant downgrade, you may not be happy with the end result. In addition, make sure that the location you’re selecting is convenient not only for your current commutes but also for future ones. Consider location requirements related to changing jobs, sending children to different schools or universities, etc. In short, once you buy a home, you lose the flexibility and convenience of moving, and that is why you should be sure that your new base will be convenient at least for future foreseen events.
Comparing only your current rent to the potential mortgage payment isn’t the best way to go about calculating your cost. In addition to the required down payment, there are many fees, charges and commissions that will come up and you need to be prepared to pay for these at closing. In addition, your monthly cost is not limited to the mortgage payment, as a homeowner you’re responsible for maintenance, insurance, utilities. Have your real estate agent or bank representative work out an approximate scenario for a property that is within your budget to see how much the monthly cost will be. You may find out that what initially appeared to be less than your rent is actually well beyond your financial means.
Things happen and you need to be aware of what happens in case you’ve to sell the property and leave the country. Are you buying a property that will be attractive to sell for its location, for example? Will you be able to rent it until you find a buyer? Get a clear understanding of any financial penalties that are involved in selling the property. In addition, assuming the property market will continue to appreciate, find out whether you will be able at least to break even if you get out of the deal earlier than planned.
Know how lenders price their mortgages. If you have been in the UAE for a short period or you have not had a stable job for a long enough time, lenders may consider you a high credit risk and charge you a higher interest rate. The same goes for the amount of down payment that you’re willing to pay. In short, ask the simple question about what you can do to reduce your mortgage costs, if possible. You may find that putting more money down or waiting for a year or so, could get you better terms. Still don’t miss the changes in the property market. With the expected increase in property prices may simply price you out because your income may not be rising as the same pace.
With all of the questions mentioned previously in mind, make sure that you shop around and get a deal that best fits your plans. Don’t let your guard down from start to end. If you see anything that doesn’t seem right, pause and ask for explanation or revision. In many cases, small points that are overlooked in the rush of completing applications and closing paperwork often come back to haunt homeowners.
Rania Oteify is a former Gulf News Business Features Editor