Highlights
- Processes, fees and the most frequently asked questions
- A complete breakdown of costs and comparison between buying and renting after the guide
- Our final argument for and against each
There are close to 8.4 million expatriates living in the UAE based on figures released and collated over the past two years. These expatriates have been living in the country for periods ranging from one year to 50 years or more. For most expats, UAE is a second home, many only returning to their own nations upon retirement. Quality of life, tax-free incomes and savings are major causes for this trend.
On the other hand, living in the UAE has many expensive components – rent being by far the largest expense item. Accounting for as much as 40 per cent of monthly income, renting an apartment creates major dents in tax-free savings for all residents.
Buying is an option but many expatriates shy away from it because of various reasons – high down payment rates, job security and residency security, delay in possession of homes, uncertainty about length of residency in the UAE, lack of awareness of options, among others.
Renting an apartment doesn’t come with any of these caveats and is more secure, with easier contracts to fulfill or terminate in a year or less.
This report breaks down the pros and cons of buying a home in the UAE for a long-term resident. From deciding whether or not to buy, to the process of buying, this is an ultimate guide to buying a home for an expatriate in the UAE.
The why?
Irrespective of where you stay or the kind of accommodation you have, we can all agree that rent is the single biggest expense each month for any expat resident in the UAE. For Dubai, experts say that at least 40 per cent of a resident's income goes into paying rent. A one-bedroom apartment, for example, could cost anywhere from Dh50,000 to Dh90,000 annually as rent depending on where you stay.
This makes buying viable as in most cases bank installments on house mortgages are much lower than monthly rents, and is immune from rental increases. The interest rates are quite low, ranging from 2.99 per cent to 5 per cent. The end result of these monthly payments, unlike rent, is that you own the home you live in.
Who can buy?
Expatriates can buy homes in any of the specified freehold areas in the UAE. The inventory includes villas, townhouses or apartments.
What is the cost?
While this largely depends on the kind of home you’re investing in, other factors can also come into play. The location of the house or flat, the stage of construction it is at, access to public amenities, schools and hospitals are some of the factors that could drive up the price you have to pay.
You could own a home in the UAE for as less as Dh500,000 going up to millions.
The sale price advertised on mass media platforms, however, doesn’t include bank fees, commission or other governmental fees that add on to the price of the unit.
We analyse these in our process section which you can use to come up with how much the total cost would be.
How to buy a home
The process
Abu Dhabi
Buying a house in Abu Dhabi at first would entitle you as a buyer on signing a Memorandum of Understanding (MoU) with the seller, where you would pay 2 per cent of the property value for your real estate agency (as a fee for their service), and another 2 per cent towards Abu Dhabi Municipality (for transferring the property to you).
After this you will get an ownership certificate from the developer of the property. Another Dh5,000 is to be paid directly to the developer as an administrative fee. The process is much simpler in Abu Dhabi given that the regulations involve the municipality and the developer only.
Dubai
On the other hand in Dubai the process is a different as it all falls under Dubai Land Department (DLD). You will still have to pay your real estate agency 2 per cent of the property value as fees for their services. DLD charges transfer fees at 4 per cent, in which 2 per cent is to be paid by the buyer and 2 per cent is paid by the seller. Remember this when many developers and real-estate agents say the whole 4 per cent is to be paid by buyers and then, sometimes offer to pay the 2 per cent as a promotion offer - they were supposed to pay 2 per cent any way.
Another Dh250 is to be paid on the day of the transfer as title deed issuance fees.
To complete the registration of the property with the DLD, you need to pay a registration fee of Dh4,000 if the real estate property price equals or exceeds Dh500,000, or pay Dh2,000 if the property price is less than Dh500,000. This is done after all the money is transferred to the seller.
In case you have a mortgage on the property, you also have to pay a fee for mortgage registration to the DLD, calculated at a rate of 0.25 per cent of the registered loan amount.
Bank fees
For mortgaged buyers of completed properties in Dubai, a down payment of 25 per cent for expats and 20 per cent for UAE nationals is requested to be paid in cash to the seller. The rest of the amount can be financed by the bank. The 25 per cent down payment is the minimum requirement for expat buyers, so you will have to save or raise this amount before starting the process.
Interest or profit rates range from 2.99 per cent to 5 per cent in UAE depending on the bank. However, before you are granted the housing loan the bank would send a property valuation consultant to value the property and they could charge the buyer from Dh2,500 up to Dh3,000 as valuation fees, This is in addition to bank mortgage establishment fee which could be upto to 1 per cent of the loan amount.
Life Insurance
Life insurance is compulsory when you take a mortgage in the UAE. The bank will charge you separately from the loan for a life insurance. This insurance is the only way for the bank to guarantee the loan is paid in full in case of death. The amount of insurance varies depending on the age and health condition of the person, and also depends on whether you choose to take the life insurance from the bank, or from an external life insurance provider.
Service Charge for developer
Once your mortgage is approved, and the property is transferred under your name, you will still have one more thing to pay to the developer – the service charge on the property on a pro rata basis.
The service charge is an amount owners pay yearly to developers to maintain and manage the common areas in the property that includes landscaping, security, cleaners, communal electricity, pest control and building insurance.
The charges are calculated per squae feet (sq. ft.); so for every sq. ft. you own on your title deed, you will be charged an amount, for example Dh15 per sq. ft. The amount payable annually is calculated in the month of purchase and you pay the money directly to the developer.
Buying vs Renting
For the purpose of this comparison we are using a one-bedroom apartment near the Al Jafiliya area as a case study. For renting, we are using Dh65,000 as our sample price (based on the RERA Rental Increase Index) and Dh1.3 million as the sale price for our off-plan apartment.
If you rent for 20 years
- Booking amount: Dh5,416 (A month's rent)
- Broker or agency fees: Dh3,250 (Up to 5 per cent of annual rent)
- Furnishing: Dh20,000
- Total initial expense: Dh28,666
- Annual Ejari for 20 years: Dh3,900 (20 years of Dh195 - assumed to not change or rise for calculation of purchases)
- Annual rent paid for 20 years: Dh2.14 million (Calculated as rent paid for 20 years with a 15 per cent increase after the first ten yeas
Total expenses at the end of 20 years: Approximately Dh2.17 million
In 20 years, renting could cost you upwards of Dh2.16 million not including utility bills and other amenities.
If you buy, payments ranging for 20 years
- Down payment: Dh325,000 (25 per cent of total sale price)
- Dubai Land Department (DLD) Fees for property transfer: Dh26,000 (Calculated as 2 per cent of sale price, the other 2 per cent should be paid by seller)
- Agency fees: Nothing if you're buying directly from the developer (2 per cent if going through an agency)
- Registration fees: Dh4,000 (Registration fee is Dh4,000 for properties valued higher than Dh500,000)
- Valuation fee for mortgage: Dh2,500 (Valuation of the property for mortgage regulations by the bank)
- Oqood fees for off-plan sales: Dh52,000 (Applicable for off-plan properties at 4 per cent rate on cost)
- Mortgage establishment fee (bank): Dh13,000 (1 per cent of cost price and could be anywhere from 0.25 to 1 per cent)
- DLD mortgage registration fee: Dh3,540 (DLD mortgage establishment at 0.25 per cent plus fees)
- Furnishing: Dh20,000
- Total initial expense: Dh446,040
- Annual maintenance of 20 years: Dh300,000 (20 years calculated Dh15 per square foot for a 1000 sq. ft. apartment)
Cost of your new home is Approximately Dh1.76 million
The final cost is calculated as Sale price + initial costs + 3 per cent fixed interest rate on sale price.
Buying a house spread over the same period of time could cost you upward of Dh1.76 million also not taking into account other incidentals and utilities. In comparison, everything you pay to buy is directly or indirectly towards something in your own name; unlike rent which is payment for a service with the undeniable perks of stability, flexibility without debt.
So would you buy or rent?
Argument for buying
At the end of 20 years you end up paying less for buying overall even after the initial spend. Your average monthly rent is at a stable low of around Dh4,166. Not to mention that you would then be a proud owner of your own property, which could be sold or rented out to earn back all your investment with profits. The 40 per cent you spend on living comes back to you in another form. The loan doesn't require any collateral other than the property itself.
Argument for renting
Owning property comes with the financial pressure of having to stay and work in the UAE until your mortgage is paid off. Unlike for your home country, this means having valid employment (and residency) to keep your monthly payments going. Selling your property could be hard and this means you may not be able to leave at a moment's notice. The loan or mortgage uses the property as collateral, so in case you can't pay off the loan, the property goes to the bank.
