Dubai: Robert Pankhurst, a UAE-based British national, bought a two-bedroom apartment in Barsha Heights (Tecom) in Dubai. He signed the agreement in November last year and the property transfer will take place in April 2022.
The apartment is priced at Dh945,000, which he purchased through bank financing or by applying for a home loan with an 80 per cent mortgage, which amounted to about Dh756,000, to be paid over 19 years. A drop in rental prices in 2020 encouraged him to make his first property investment in Dubai.
“I had been renting my apartment for two years in Barsha Heights (Tecom), but the landlord had not agreed to any rate reductions towards the end of 2020 rentals when rents were dropping by Dh20,000 per year,” said the Dubai-based senior sales professional.
“I liked the building I was in and was going to look at renting another apartment for Dh20,000 lesser than my usual annual spend. While I looked for a new rental, I reviewed the cost of purchasing versus renting and the benefits of owning a home.”
“Having lived in Dubai for seven years, I decided it was time to invest in my own future rather than investing in someone else’s by paying their mortgage for them via rent and purchased an apartment in the same building, where I was renting.”
Funding Tip #1 - Transfer savings from home country, with perk of favourable exchange rates
Pankhurst arranged for the down payment partially from his savings in Dubai, with a large portion being transferred from the UK.
“I was fortunate to have an offset mortgage in the UK, which I have been making regular overpayments from savings. The offset gives me a great deal of flexibility in the future when overpaying; this purchase is a prime example as it was straightforward to move the funds out of my offset and from UK rental income and transfer to the UAE as the exchange rates have been favourable.”
“I used a forex service to transfer funds to the UAE that waited until the exchange rate was in my favour before transferring to the UAE. By using this service and delaying the transfer, I saved over Dh10,000 in the exchange rate process.”
While arranging funds for the down payment was smooth, his purchase via mortgage was quite complicated because the seller lived abroad and had a Power of Attorney (POA) working on their behalf. “I found out that a lot of lenders avoid this sort of transaction because of the complexity.”
A power of attorney is an authority imposed on an agent by the principal allowing the said agent to make decisions on his or her behalf. The agent can receive limited or absolute authority to act on the principal's behalf on decisions relating to health, property, or finances.
“So my advice for other buyers is to use a mortgage broker, don’t underestimate the timelines or complexity in buying with a mortgage and never rush to sign any documents without speaking to your mortgage broker or a legal representative first.”
Here’s another instance..
Another property buyer, Dr Hanah Mushtaq, an Indian dental surgeon, bought a Shoreline Apartments on The Palm Jumeirah in February 2020, right before the COVID-19 lockdown. The property was within their budget of around Dh1.3 million to Dh1.5million and purchased using bank finance.
This is her first property purchase in Dubai that she and her husband bought for investment and to then live in it in the future.
“My husband and I were looking for an apartment within a good community and friendly environment for my newborn daughter to grow up, and this place was an ideal fit. We wanted an apartment that would go on rent immediately that would help pay the home loan that was taken for the property, as the unit is currently rented.”
Funding Tip #2 - Pay from savings but avoid taking a loan when state of finances are uncertain
Dr Mushtaq took 70 per cent of the property value as a home loan; the remaining 30 per cent was the down payment. “We had saved enough to pay 25 per cent, and the remaining 5 per cent was taken as a personal loan. Taking a personal loan during such uncertain times is challenging.
“But the banks were quite supportive as they were aware that the lockdown had affected everyone financially, and the EMI was deferred by a couple of months which gave us time to reorganise finances.
“However, in this present situation, I would not recommend anyone take a personal loan …. We had made this decision based on our earnings at that time,” she added.
What money experts advise on funding the down payment of a mortgage.
Money experts suggested that people take a home purchase decision only when they have enough cash or liquid investments to pay down payment.
Samih Awadhallah, Head of Distribution at ADIB (Abu Dhabi Islamic Bank) said that although some developers provide offers whereby they fund the down payments, the prudent buyers must have enough funds to pay the initial down payment towards a home purchase.
Funding Tip #3: Liquidating personal investments should be primary source, not financing
Savings and liquidating personal investments are appropriate means to fund the down payment rather than financing. Awadhallah said, “Taking a personal finance to fund the down payment is not the most efficient use of funds as it can overburden the buyer with large payments due to the short tenure of personal finance.
“Purchasing a house without any equity is not allowed from a regulatory standpoint. The UAE Central Bank regulations mandate that the customer self-fund the down payment and not use personal finance/cards as sources of down payment. Availing a sizable amount of personal finance just before availing of home finance can also lead to the home finance application being declined.
“As a relief towards outflows related to a home purchase, some banks provide funding for property registration fees, mortgage registration and brokerage fees (approximately 6 per cent of the property purchase cost) and this can reduce the upfront cash required to some extent.
"However, property investment carries its own risk or reward and fully levering your property purchase would not benefit you financially as the finance cost and service charges would be almost equal to the rental income/ expense,” he added.
Funding Tip #4: Gather finance by saving money from a mix of sources, rather than one source
Brendan Kennelly, Senior Mortgage Consultant at Mortgage Finder, said people could take time to gather the money for the down payment.
“People can accumulate finances through a combination of things such as selling something that they may not necessarily need, temporarily downsizing their accommodation when renting, and careful budgeting to save on other monthly outgoings.
“They can also bring funds from property overseas by selling a property they own abroad or by releasing equity (cash) on those properties and getting those funds to the UAE.”
Funding Tip #5: Using outside-of-income money like bonuses, commissions, inherited gifts
Kennelly said that people could also use any additional money outside of a salary or regular income.
“This could be in the form of bonuses or commissions that one receives when working in specific roles or industries that would help them fund all or some portion of the down payment.
“Gifted funds from family or friends, including the funds they have received through inheritance or receive money as gifts from parents and other family members, could be used for a down payment.”