With several attractive choices – from waterfront properties to golf homes and even theme park-inspired residences – buying a house can be a task for any aspiring homebuyer. However, picking a property that is beyond your means is a mistake that should be avoided. Planning and budgeting properly can make the process simpler. In Dubai, there are various financing options offered by developers, property owners and banks on off-plan and ready properties. These schemes have actually made home ownership a much more achievable goal to many residents.
Most Dubai developers provide post-handover payment plans with lucrative incentives such as exemptions on certain fees, free service charge for up to five years and even free furniture. “Off-plan buyers benefit from paying as little as 20-40 per cent during construction and 80-60 per cent post-handover, with extended payment plans from three years up to 10 years,” says Naval Vohra, managing director of Appello Real Estate. The instalments can be paid monthly, quarterly or biannually. Some developers even offer guaranteed rental returns, adds Vohra.
Some attractive options include some apartments in Downtown Dubai and Mudon, where a developer offers for 20 per cent up to handover and then 80 per cent in six years, with free service charge for five years and 50 per cent discount on the Dubai Land Department (DLD) fee, says Vohra. However, Vohra advises buyers to choose a payment plan that suits their cash flow.
Banks can fund up to 50 per cent of the value for off-plan financing, but developers must meet certain criteria that protect the bank and customers from unnecessary risks, says Girish Advani, head of assets, retail banking, Noor Bank. “The bank disburses the 50 per cent directly to the developer based on a construction-linked payment plan,” says Advani.
Buying ready property
There are post-handover schemes of three to 20 years with a low down payment option. “Going further, a developer has even announced a zero down payment scheme in Meydan,” says Vohra. There are also attractive schemes in the secondary market, such as rent-to-own schemes (see box).
UAE nationals can get up to 80 per cent ready property bank financing, while expats can get up to 75 per cent. “The critical aspect for the customers is to ensure the valuation is done correctly to make sure they are paying the right price,” says Advani.
Find the right financing scheme
The difference between financing products these days is around pricing, says Tariq Abdulla Ahmed, head of home finance at ADIB. “That is whether the financing is on fixed or variable rate, and its tenure period,” says Ahmed. “This varies from bank to bank, each seeking to gain a competitive advantage. One could find rates anywhere from 3 per cent to 6 per cent, depending on the level of risk and whether one is assessing fixed or variable products.”
Most banks offer an initial fixed mortgage rate for one to five years and variable rates thereafter, or they can provide fully variable rates linked to a benchmark. “These benchmarks could be market-linked or the bank’s internal prime rates,” says Advani. “Look for market-linked benchmarks like EIBOR as these are more transparent compared to a bank’s internal benchmarks.”
Look at the rates/margin for the overall finance tenor rather than the low rates typically offered in the initial years. “The lower initial rates are attractive in the short term but are expensive later,” says Advani. “Also, look for clauses related to early or partial settlement in the event of moving to another bank or early pay-out of the outstanding mortgage. For instance, Noor Bank offers free partial settlement of up to 20 per cent of the outstanding every year.”
Other costs involved in a home purchase include the down payment, which is a minimum 20 per cent for UAE nationals and 25 per cent for expats; property registration fee, which is 4 per cent of the property value payable to the DLD; property broker commission, usually up to 2 per cent of the property value, 0.25 per cent of mortgage value for DLD property registration, 1 per cent processing fee for mortgage finance and Takaful costs for life and property insurance, says Advani.
Also, there are costs for moving furniture or buying new furnishings, which could reach roughly 7 per cent of the property value. Most customers do not budget for these expenses, notes Advani.
Homebuyers should first seek mortgage pre-approval from a bank. “Customers would need their bank statement, proof of income, Emirates ID and a passport,” says Ahmed. “They can renew the approval at the time of purchase. This allows the buyer to understand the steps better and know the other aspects such as property insurance costs, life insurance requirements, upfront fees, etc.”