Dubai: With apartment and villa sale prices dropping steadily and many expatriates residing in the UAE for more than five years, buying a flat is increasingly becoming an attractive proposition.

However, just about a third (30 per cent) of UAE residents have actually purchased a house in the country, which means that the overwhelming majority (70 per cent) of them are still renting. The picture is different in other markets, like the United Kingdom, where about six out of ten residents own a house.

Part of the problem may be that a huge proportion of the population are unable to raise enough cash to afford property downpayments. Banks are also being very selective in extending funds to borrowers. “A home loan for a property located in a freehold location such as Downtown Dubai is easier to obtain than a property located in other leasehold locations,” says Haider Tuaima, Research Manager, ValuStrat.

For expatriates hoping to purchase a Dh1 million flat in Discovery Gardens, International City, or anywhere in the emirate, they need to set aside approximately Dh327,000 in cash, according to Lukman Hajje, propertyfinder Group CCO.

“The Central Bank stipulates that expatriate buyers must have a 25 per cent cash deposit for properties priced up to 5 million (80 per cent for locals) and 35 per cent for above Dh5 million,” Hajje points out.

She says that on top of the deposit, various other fees worth approximately Dh77,000 will be added, including land department fee, registration fee, real estate broker commission and bank and valuation fees, among others.

So, even if developers are luring domestic buyers with ads that they’re willing to accept only 10 per cent of the cost as initial payment, potential buyers will soon realize that they won’t be able to book their dream home.

“Off plan buyers cannot borrow more than 50 per cent of the price for off plan properties. Once the properties are complete and all the legal required occupation certificates have been obtained, they can borrow up to 75 per cent of the purchase price,” Hajje explains.

“Many developers use ‘book now with 10 per cent’ [advertisements] as a hook, but typically this is only the first required instalment.”

Jesse Downs, managing director at Phidar Advisory says home ownership should be encouraged because of the social, financial and economic benefits, but she agrees that “the lending restrictions are a barrier for many residents in the UAE, especially for middle-income households”.

“The high cost of living - and sometimes wild fluctuations in that cost - erode the savings rate, which makes it challenging to afford the minimum 25 per cent downpayment,” she says.

“Measures like the loan-to-value (LTV) restrictions and transfer fee increase helped reduce speculation, but now hinder home ownership. It would be better to implement a tiered concept for transfer fees whereby a significantly lower fee transfer fee is charged for the primary residence and a higher fee is charged for additional units purchased and not used as a primary residence.”

“Of course, this differentiation exists within the mortgage regulation, but it would be beneficial to widen the gap, ideally by increasing the LTV allowed for the first property. “

However, other property analysts argue that tight mortgage rules and lending practices have been put in place in order to discourage irresponsible borrowing.

“Strict mortgage rules and doubling of transfer fees were put in place to calm a potentially overheating market  in 2013 to 2014. These two measures helped to gradually stabilise the market as we have seen during the last 12 months,” says Tuaima.

“This has helped reduce speculation to a minimum and kept good credit risk candidates out of the market. Because of the high deposit requirements it creates, people are maintaining likely higher rental payments on their current accommodation.”

How much cash you need to raise to buy a Dh1 million property in Dubai:

Dh250,000 deposit (25 per cent of the property cost)

Dh40,540 Dubai Land Department fee (this 4 per cent + Dh540 fee is supposed to be split with the seller but common practice is that this is paid by the buyer)

Dh4,000 registration fee 

Dh1,885 mortgage registration fee

Dh20,000 real estate broker commission (typically 2 per cent of the purchase price)

Dh7,500 bank fees (up to 1 per cent of the loan amount)

Dh3,000 valuation fee (approximate)