Dubai: Buyers who have just acquired a property in Dubai through mortgage financing could be caught short by the hike in registration fees to 4 per cent from 2 per cent.
“Most of the financed buyers are taking loans on an 85 per cent loan-to-value, which means the balance is from their own cash,” said Chadrakant Whabi, CEO of Acrohouse Properties. “Finance is normally given on net selling price; the additional 2 per cent brokerage fee and 2 per cent transfer charges are paid for by the buyer, which is the normal market practice.” (It is market practice that buyers step up with the additional payments even though the rule is that the registration charges are to be borne equally by the buyer and seller.)
The hike is to come into effect on October 6, according to the Dubai Land Department.
“A sale agreement usually takes between 30 to 45 days to be completed in mortgage financing deals due to lengthy bank formalities that need to be completed,” Whabi said.
As things stand now, the buyer puts up the security deposit of 10 per cent while signing the MoU. But, with the hike coming into effect, there is “a risk of this being forfeited if the buyer does not arrange the funds before the agreed transfer date, usually between 30-45 days,” said Whabi.
This could impact agreements signed before the announcement date but where the transfer has not taken place.
“The seller might not pay or share these extra charges as they stick to their net selling price,” said a market source. “Banks are not willing to fund the extra charges as it’s not their policy to fund transfer charges.
This leaves the finance buyer to arrange for the extra 2 per cent, which is more than 10 per cent of the capital he has saved for his property investment in most cases (if the buyer has taken an 85 per cent loan, he would normally be required to arrange a 15+2+2 per cent payment initially) within days.
This is the crunch phase as everything will depend on the number of days left for the transfer to be effected. Otherwise, the buyer runs the risk of losing his entire security deposit placed on the property.
“While the authorities would have justifiable reasons for increasing the charges, implementing it at such a short notice has created some concerns in the market,” said Whabi. “This could have been avoided if reasonable time was given to buyers and sellers to adjust to the new charges.”
According to Khawar Khan, research manager at Knight Frank, “In recent years, such “cooling” measures have also been introduced in other markets. Indeed, both Singapore and Hong Kong have implemented a number of policies since 2009, albeit with varying degrees of success.
“This is reflected in the fact that, in annual terms, in the second quarter of 2013, prices continued to see double-digit rises in Hong Kong, while Singapore saw a relatively modest increase of 4.5 per cent — a sharp slowdown compared to mid-2010 levels.”