Calculating property commissions

Question: I am an expatriate living in the UAE and I intend to buy a house either in Dubai or Abu Dhabi for investment purposes. One question I have had for a long now is how do the commission rates differ between real estate companies and brokers, and what determines commissions here in the UAE?

Answer: The practicalities of buying property in the UAE are no different from buying property in other parts of the world, but as an expatriate there are a number of factors you must check before purchasing a property here. These issues include: where you are legally allowed to buy, the types of documentation and contracts you can expect, and the charges levied by developers and real estate agents.

The first important fact you need to be aware of is that foreign nationals are not allowed to buy freehold properties in Dubai or Abu Dhabi, except in designated ‘investment areas' where they are allowed to own buildings, floors and apartments, but have no freehold rights on the land the building is built on. In Dubai these developments include The Palm Jumeirah, Emaar Towers, The Greens, International City, as well as others, and in Abu Dhabi cover Al Raha Beach, Al Reem Island and Saadiyat Island.

Once you have found a property you like and agreed a sale price then it's time to start looking for a mortgage. Not all UAE lenders offer mortgages for properties in all residential developments, so you will need to check if your intended property is financeable for which you need to get written confirmation from your agent, or the developer.

Mortgage rules have become more stringent in the UAE in past year or so, due to the property downturn, with most lenders offering a maximum of 75 per cent finance for non-UAE citizens.

Now that everything is in place for the purchase to go through you will also need to consider additional costs, which as you have quite rightly identified, includes commission to the real estate agent who has brokered the sale. Unlike most other countries, where broker's fees are only charged to the seller, in the UAE agents also traditionally charge commission to buyers. At the height of Dubai's property boom in 2008, this form of commission rose to around three per cent of the sale price, which real estate companies' justified on the back of similar price rises in the running their own businesses.

However, as a result of the recent property downturn commission charges have dropped also, to nearer one per cent of the purchase price, which is now pretty standard across the UAE real estate sector.

Yet it can be always be argued that it is the buyer who always bears the brunt of commissions and fees because they are routinely factored into the sale price by real estate companies. A situation which is endorsed by the contracts sellers sign with real estate firms agreeing that all such costs are automatically deducted from the sale price.

The writer is a Solicitor and Senior Estate Planning Consultant with Nexus Insurance Brokers LLC, Views expressed here are the writer's own and do not necessarily reflect the views of Gulf News. If you have any questions please email to advice@gulfnews.com.