Nothing is more exciting than viewing new apartments, layouts and planning interiors when looking for a new property. Less interesting, perhaps, is figuring out regulations, searching for finance and preparing endless documentation, which can be an intimidating process, especially for a first-time homebuyer.
With the real estate market in Dubai likely to stage a strong rebound next year, potential homebuyers and investors are already taking advantage of lower rates to expand their real estate investments. Now is a good time for young people to start their property portfolio, albeit, with care and caution.
Before you embark on your journey home, it is important to understand regulatory norms and where you fit in. If you are a first-time buyer, the maximum financing — also called finance to value — you can avail is 75 per cent for a property that is less than Dh5 million, and 65 per cent in case the property price is more than Dh5 million. This means a minimum of 25 per cent of the property price has to be self-funded or made as a down payment for your first property.
Banks also have income eligibility norms, which tend to be Dh10,000 per month minimum income for salaried individuals to Dh25,000 for others. You also need to keep in mind the other charges and fees, such as 4 per cent registration charges on the price of the property, 0.25 per cent of your finance value and a real estate broker charge of 2 per cent, if applicable. If you feel you can handle these requirements, then shop around for a financier.
Vertical comparison websites such as Souqalmal and Compareit4me give a fair idea of prevailing market rates, but still, many first-timers may feel overwhelmed by the flood of information.
In such cases, it is better to approach your bank, connect with a home finance advisor who can walk you through the processes, clear doubts and give the most appropriate advice. Alternatively, you may contact reputable finance brokers who are connected to financing institutions and builders.
At this stage, even as you continue to look at properties, try to get a home finance provider to give you a pre-approval. If you don’t get pre-approval, housing agents may be reluctant to facilitate you with offers on properties and you may miss out on a sale. Most home finance providers offer a pre-approval facility for a nominal fee between Dh1,000 to Dh5,000. This gives you the ability to go out in the market and select a property of your choice.
Over the years, policy-makers, real estate developers and banks have worked together to make the housing market safe for middle-income families. A combination of instruments like credit bureau, escrow accounts and insurance has helped weed out speculative activity.
Credit bureau: First and foremost, it is important for customers to maintain a good track record on monthly payments. The Al Etihad Credit Bureau maintains relevant credit history and if a customer defaults on payments, credit rating can be affected, making it difficult to take on more financing in future. This has been done to prevent a customer from taking unnecessary risks.
Off-plan and escrow: First-time buyers need to be aware of the risks of buying off-plan or under-construction property and its implications on financing. The off-plan segment was instrumental in the real estate crash of 2008, but now, with stringent regulations in place, buying off-plan property is less risky.
Conventional as well as Islamic banks offer two kinds of financing — Standard Ijarah for ready property and Forward Ijarah for off-plan. The profit rates and down payment for such projects may vary.
For further safety, developers are now obliged to provide guarantees via escrow accounts and construction-linked payment plans. This enables banks to monitor construction schedules and gives first-time buyers the confidence to buy off-plan property.
Takaful: Another way to ensure buyer safety is through Takaful or insurance. Although this entails some expense, life and property Takaful are now mandatory for all home finance clients. Premium rates are nominal and can range from 0.36-0.5 per cent per year.
Alternatively, various finance providers have flexible payment plans, and even financing options for clients for insurance recovery, ranging from monthly to annual options.
Once these details are in place, clients need to decide on their home financing plan. It could either be by way of flexible pricing or fixed pricing. Most people choose the flexible rate scheme, where customers can take advantage of market rates and re-price their monthly instalments from time to time.
Conservative buyers go for fixed pricing to know the exact outlay on their assets and have peace of mind. The catch is, the fixed tenure is only up to a period of five years, after which it is converted to a floating rate model.
Disbursal: By this time, it is expected, the buyer would have fixed it up with the seller or developer. At the time of disbursal of funds, clients are expected to be ready with a list of conditions stated in what is called the final offer letter. Once this is accepted, the suite of finance documents, comprising but not limited to the purchase/sale agreement of the property, legal agreement pertaining to the finance transaction have to be signed.
Registration: Upon finance disbursal, the bank representative will take charge and escort the client to the Dubai Land Department (DLD), or the relevant registration authority in each of the emirates. All original documents, cheques payable to the DLD should be available for this appointment. The bank representative will accompany the client to the registration authorities and upon approval, the title deed will be issued. This will be kept with the bank.