Dubai: Buying a home is a dream for many and can be a defining chapter in most people's lives.
Like any dream, making it a reality can be daunting if you don't know where to begin. Confusing processes, dealing with multiple middlemen, concerns about getting the right return on investment or finding a reliable mortgage partner can be discouraging to many. But hope is here!
2021 was a phenomenal year for the Dubai real estate market, with trends and figures that have not been seen in the past 8 years. 61,241 sales took place worth Dh151 billion, with six out of 10 transactions on the secondary market. With an increase of 110 per cent over 2020, the market is ripe for investment in property.
The secondary market is where lenders and investors buy and sell existing mortgages or mortgage-backed securities. This frees up money for additional mortgage lending.
With the UAE currently considered one of the world's most growth-driven property markets despite the pandemic, the country is a great option to consider investing in your first home. So here are essential tips for first-time homebuyers to alleviate concerns and make a confident purchase.
Where to begin your home-buying journey?
When determining a return on investment (ROI) in a home, it is important to consider short- and long-term returns based on market conditions, as a key advantage of buying a home as an investment is the monthly cash from rental returns.
In fact, many claim this is the best form of investment available. A good long-term ROI in property is considered to be in the range of 6 per cent to 8 per cent, where rental income on those properties can range between 8 per cent to 12 per cent.
With the UAE considered one of the world's most exciting property markets despite the pandemic, the country is a great option to consider investing in your first home.
Here are some first-time buyer lessons that will influence your choice of home, broadly split into three focus areas: Property Features, Financing Options and Red Flags.
Lesson #1: Four factors to look for when it comes to property features
1. Location:
Location always impacts ROI. Since expats in Dubai mostly rent apartments, the best locations to invest in properties are renowned hotspots like Dubai Marina, Palm Jumeirah and Downtown Dubai. These areas have high occupancy levels, hence you’ll always find a tenant ready to rent immediately.
2. Proximity to lifestyle:
Another influence on ROI comes from proximity to essentials such as public transport, supermarkets, parks and recreation, beaches and nightlife. Nearby schools and educational facilities also impact returns.
3. Size of the home versus. liquidity and resale:
1- and 2-bedroom units are a great option for investment due to faster liquidity, meaning they sell quicker and offer better returns compared to penthouses or villas. This is due to Dubai’s expat population being more likely to afford smaller properties with easier mortgage options.
4. Maintenance and government costs:
Dubai’s Real Estate Regulatory Agency (RERA) runs a Service Charge and Maintenance Index, which regulates the cost of maintaining properties. Costs vary by community and property type, and should be kept in mind when forecasting ROI. For example, maintenance costs in the Downtown area could be Dh20 per square foot, but can increase to Dh50 per square foot or more in other areas, impacting estimated income.
Lesson #2: Two aspects to consider when a first-time homebuyer finalises financing options
1. Interest rates and mortgages in the UAE:
Mortgages: Most banks provide mortgage amounts that are a percentage of the value of your property. According to local laws, UAE residents must pay at least 20 per cent of the property price as a down payment.
Interest rates: UAE banks offer many options for purchasing property, including fixed-rate mortgages and variable interest rates. Dubai residents enjoy interest rates ranging between 2 per cent to 3 per cent, however, non-residents should expect slightly higher rates between 3.5 per cent to 5 per cent.
Loan tenures: Dubai residents enjoy longer tenures for mortgages up to a maximum of 25 years whereas non-residents get lower tenures depending on banks they deal with.
2. Payment plans
There are many payment plans available in the UAE mortgage market. Some are offered by banks however developers also provide options:
1. Post-Handover Payment Plan: Payments start once the property is handed over. The buyer provides a down payment before handover and pays the remaining in installments over a predetermined period usually ranging between three to 10 years.
2. 10/90: A buyer pays 10 per cent of the property value before handover, with the remaining 90 per cent paid over an agreed period with varying installment options and frequency.
3. Payments made during construction or upon handover: Most payments are made during the construction period, with the remaining paid upon receiving keys to a property. Many versions of this payment percentage plan exist including 50/50, 60/40, 70/30 and more.
4. Rent to Own: This option allows the buyer to pay a monthly rent to live in a property they wish to purchase, with the rental amount treated as an installment on a payment plan
Lesson #3: Four detrimental red flags to watch out for a first-time homebuyer
Bear in mind there will always be unscrupulous operators making the process difficult. Here are some red flags to consider:
1. Duplicate listings: Duplications by agents in an attempt to offer other properties
2. Fake listings: Properties that aren’t available, used to collect contact information
3. Unrealistic pricing: Prices lower than market value for no apparent reason
4. Misleading photographs: Purposely making properties appear larger; filtered images hiding visible issues
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