FAQs ON A TYPICAL PROPERTY TRANSACTION:
1. Freehold Property - definition
2. Sizes
3. Documentation / Agreements / Registration & Title Deed
4. Purchase Process
5. Re-sale & Transfer
6. Payments - Schedule & In Favour Of Whom
7. UAE Residence Visa
8. Other charges - Maintenance & Parking
9. Home Owner Finance
10. Defaults
11. Project Completion
12. Rental of Property Purchased
13. Selling in Dubai
14. Utilities in Dubai
15. Factors driving Real Estate Demand
FAQs on a typical Dubai Real Estate Transaction
1) FREEHOLD PROPERTY - DEFINITION
What is Freehold Property?
The owner of a freehold title of real estate enjoys the most superior form of private property ownership. A freeholder is considered to be the absolute owner of the land and buildings comprised in his title; he has the right to occupy, use and enjoy his property forever (“in perpetuity”) or until he transfers the title to a new owner, and his heirs are entitled to inherit his title upon his death.
2) SIZES
Studios - Size approximately 480 sq.ft.
One Bedrooms - Size approximately 716 sq.ft.
Shops - Size varies-approximately 500 sq.ft. upwards and downwards
Are all the units the same size? What other sizes available?
Most studios and one bedroom units are the same size. Some units have balconies and some do not. Sometimes the ones located on the corners of the building are slightly bigger.
Retail shops on the ground floor vary in size and are priced accordingly.
3) DOCUMENTATION / AGREEMENTS / REGISTRATION & TITLE DEED
What documents are filled in to purchase a property on the primary market, i.e., direct from the developer?
● A buyer of a freehold property in Dubai only needs to provide a copy of his passport papers to purchase a property on the primary market, i.e., direct from a developer.
● A company purchasing a property must provide the developer the company's registration documents (Articles of Incorporation, Registration Certificate, POA of the person signing on behalf of the company, and Board of Directors Resolution).
● Either entity, i.e., a person or a company, needs only to sign a property reservation Contract with the developer to purchase a property.
● On handover of the property to the property purchaser, the property purchaser will have to register his property at the Govt. of Dubai Lands Dept. to obtain a title deed. The property purchaser would be responsible for paying the fees to the Govt. of Dubai Lands Dept. to obtain a title deed this normally amounts to 2% of the property value. The property value must be fully paid up so as to obtain a Title Deed from the Govt of Dubai Lands Dept.
4) PURCHASE PROCESS
Typically the prospective Buyer and Seller enter into an MOU, wherein the buyer commits to purchase the property and the seller commits to sell the property.
In a purchase transaction, the buyer pays an initial booking deposit (of nor more than AED 100,000 for villas and apartments) to the seller. If the buyer withdraws from the transaction, the buyer forfeits his booking deposit. If the seller withdraws from the transaction, the seller refunds the booking deposit amount. The balance consideration is paid by the buyer to the seller upon transfer of the property to the buyer.
5) RE-SALE & TRANSFER
a) Can a Property Purchaser sell his property?
Most developers allow Property Owners to re-sell their property, however, some have restrictions on the amount the owner must have paid the develop before re-sale. Developers usually charge owners a transfer fee of 1% to 2% of the value of original list price of the property in order to effect a transfer to a new buyer.
b) How to make a transfer?
In order to effect a transfer to a new buyer, developers usually require a property owner to sign a transfer letter with the new buyer at the developer's office. Developers then usually proceed to issue a new property contract with the new buyer.
c) Does a property purchaser have to be in Dubai to get property transferred?
No. The owner of a property can appoint a power of attorney holder in Dubai who can engage in the transfer formalities. The POA has to be notarised and authenticated by the UAE Embassy in the property owner's country of residence.
d) A power of attorney is sufficient for the all transactions including transfer?
Yes. To purchase a property, a notarised POA is sufficient. To sell a property a notarised POA + authentication by the UAE Embassy is sufficient
6) PAYMENTS - SCHEDULE & IN FAVOUR OF WHOM
a) What are payment schedules and on-going instalments? What is the currency of payment?
There are 4 payment instalments methods - Payment Schedules (A,B,C,D) and there is a discount applicable for paying more upfront. i.e.
Payment Schedule A: Reservation Fee = 10% plus further instalments
Payment Schedule B: Reservation Fee = 30% plus further instalments
Payment Schedule C: Reservation Fee = 50% plus further instalments
Payment Schedule D: 100% paid on reservation.
All payments to the building owner must be made in AED (UAE Dirhams). 1 USD = 3.68 AED (fixed rate). The AED fluctuates against the GBP. As on the date of this report the AED 7.1 = 1 GBP.
b) What form of payment is accepted?
Wire Transfer / Bankers Draft / Money Order / Credit Card (at a later date)
c) Does the building owner issue a receipt for every payment paid?
Yes.
d) Does the building owner send a statement of account to the property purchaser every month?
No - just a receipt when an instalment is received.
e) Is there any Late Payment Penalty?
If the property purchaser delays a payment he is charged a late payment interest at the rate of LIBOR + 4% (LIBOR is defined as Emirates Interbank Offer Rate which can be looked up in the Financial Times). If the property purchaser delays the payment of 3 instalments then seller reserves the right to cancel the sale and the seller may forfeit up to 30% of the unit value.
f) To whom should I make payments to?
If the property purchaser purchases the unit without finance then the payment is made in AED via bankers draft or telex transfer to the building owner and NOT to its agents, unless specifically authorised in writing by the building owner.
7) UAE RESIDENCE VISA
a) Can all family members can get UAE residence visa: i.e. Father, Mother, Father, and children under 18 and unmarried daughters?
For Apts: a 3 year multiple entry UAE residence will be issued to the principal home property purchaser (e.g. Father) who can then sponsor his spouse and children and under 18 years of age and any unmarried daughters above the age of 18 years.
For Shops: a 3 year multiple entry UAE residence will be issued to the principal property purchaser (e.g. Father) who can then sponsor his spouse and children and under 18 years of age and any unmarried daughters above the age of 18 years. To operate the shop as a commercial business the shop owner would require a commercial trade license obtainable from the Govt. of Dubai Economic Dept. Depending on the nature of the commercial activity in the shop the investor would either have to set-up a limited liability company or a service agent license.
b) Who issues the residence visa? Is it guaranteed?
The Government of Dubai. Yes as long as the property purchaser owns the property and clears all security and medical tests and is not rejected by the Ministry of Labour and Social Affairs.
c) If the property purchaser is not living is Dubai but planed in the future, what will be the procedure to get a residence visa?
Once the property purchaser buys a property he is automatically entitled to get a residence visa. He can choose the time and date when he requires it.
d) If the property purchaser is not living in Dubai can they get visa in a different person name like their employees or other family members etc.?
No - only principal property purchaser gets a residence visa and sponsors his / her dependents.
8) OTHER CHARGES - MAINTENANCE & PARKING
What are the maintenance and parking charges?
Developers usually charge for Maintenance at rates varying from AED 2 to AED 8 per year per sq. ft. of built-up area of the unit purchased.
Developers may also charge for parking and rates usually vary from AED 2000 to AED 4000 per parking bay (this is a one-time charge).
9) HOME OWNER FINANCE - MORTGAGES
a) Is Home Owner (mortgage) finance available on freehold properties?
Home finance is available on all Nakheel real estate projects from Nakheel's home finance subsidiary, Tamweel, and on Emaar projects from Emaar's home finance subsidiary, Amlak.
Mashreq Bank also offers mortgages. RAKBank offers mortgages only once the project is completed
A range of other banks and finance institutions are starting to offer mortgages. Lending criteria vary at each institution.
As yet, no finance institution is offering mortgages on freehold developments of any private developers.
b) How do I get finance?
Each financial institution has a check-list of loan criteria. The property purchaser will have to full-fill the financial institution's loan criteria and provide the necessary documentation which includes but is not restricted to:
● Passport Copy of property purchaser(s)
● Bank Statement of property purchaser(s) for 1 year
● Credit History - Credit Bureau report (EQUIFAX, D&B etc), bankers reference, credit card report
c) When does the Financial Institution start charging the interest?
Depending on the bank, in most cases interest accrued during the construction period, and the property purchaser will have to pay / clear this amount on handover of the unit, and then the property purchaser will have to repay principal and interest instalments for the tenure of the loan.
d) What will be the APR or Interest Rate? What is the compounding method?
Depending on the bank, between 5.5% to 6.5% p.a. payable on a declining principal balance.
It may be monthly or quarterly.
e) What are the mortgage tenures?
Between 5 to 15 fifteen years depending on the financial institution.
f) Does bank / Financial institution send us the statement every period at our overseas address?
Yes - it could be monthly or quarterly.
g) Who should we make out the payment out to?
To the name of the property seller for the down-payment amounts
To the name of the financial institution of the loan repayments
h) Is a mortgage registered at the Govt of Dubai Lands Dept.?
Yes - when property purchaser finance becomes a reality mortgages will be registered on each property at the Govt. of Dubai Lands Dept. Mortgage Section
10)DEFAULTS
Under what conditions is default defined?
Developers reserve the right to cancel the property reservation agreement and re-possess the title of the property in case of default from the property purchaser. In such a case, the property purchaser typically stands to lose the lesser of the instalments paid already and 30% of the property value.
If the property purchaser delays his instalment payment beyond a grace period of normally 30 days from the date when the payment is due, the property purchaser is usually charged interest at the rate of approximately 6%, and the developer typically reserves his right to cancel the contract.
11)PROJECT COMPLETION
Is there any penalty payable to the property purchaser if the project is not completed on time?
Typically, developers delay the staggered payment schedule if a property is not completed on time.
12).RENTAL OF PROPERTY PURCHASED
a) After completion what would the estimated average annual rental for units?
Studios: Range: AED 28,000 to AED 35,000
One Bedrooms: Range: AED 35,000 to AED 60,000
Shops: Range: AED 50,000 to AED 80,000
Property owners can expect rental yields of 6% to 10% p.a. on the value of their property. The rental agent's charges to manage the property on behalf of the owner are approx. 10% to 12% of the annual rental amount.
b) What does the rental agent charge for property care, repair and maintenance?
The rental agent's charges to for care and maintenance are cost as per actuals + a 30% markup. The charges are borne by the property owner.
c) Is the rental market robust?
Yes. Review the Gulf News (leading UAE daily newspaper), article on rentals and market trends.
13) SELLING
a) If the seller wants to sell his property what are the charges normally charged by sales agents?
Between 1% to 2% of the property value.
b) What if it is transferred fee between family members?
Same amount as above.
c) Do a property purchaser and seller need to be in Dubai for transfer the property or at the same time?
No - If the POAs are properly notarised and available as noted above, then this is ok.
d) After selling how long the residence visa is valid for?
• Normally between 30 to a max of 45 days after the property is sold to the new property purchaser, after which it is cancelled.
14) UTILITIES
a) Who pays electricity and water and sewerage bills?
The property purchaser. Electricity and water charges normally range from AED 250 to AED 500 per month i.e. GBP 36 - 73 per month or USD 68 - 136 per month.
The telephone and internet connections are separate and charged as per actuals.
Telephone hook-up normally ranges from AED 150 to AED 250 one time i.e. GBP 22 - 36, or 40 - 68 one time charge.
Internet ADSL costs approx. AED 250 per month i.e. GBP 36 per month OR USD 68 per month.
15) WHAT IS DRIVING REAL ESTATE DEMAND
● Liberalisation of real estate sector - expats can now own property
● High tax-free yields on freehold property rental
● Globalisation and its effect on property prices in metropolitan cities world-wide
● Favourable interest rate environment
● Mortgages & homeowner finance available
● Granting of "permanent" residency upon purchase of freehold properties
● Great Value - Real estate land & apartment valuations are cheap compared to international prices
● Conducive lifestyle: safe, tax haven, secondary and tertiary home for
international buyers
● Dubai's robust economic growth: 8% p.a. (GDP)
● Dubai's robust population growth: 5.6% p.a.
● Large mid-income population bracket with high disposable income
● Dubai's is the regional entrepot & tourism center
● UAE is an open, welcoming & tolerant state with investor friendly business
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