The Dubai real estate market is often termed as a magnet for investors in property buying. The reason, you ask? It attracts investors from across the globe. People belonging to different regions prefer Dubai for its high ROI, sound economic conditions and the abundant opportunities it provides them with. As per a report, three quarters (75%) of the real estate in Dubai has been purchased by overseas investors.
The process, on paper, may seem to be quite easy to venture into the real estate market and buy property in the emirate as a foreigner. However, in reality, it can be very complicated if not planned carefully. You need to know a lot about the market, how properties are valued, and above all, the payment options available for buyers. To make things easy for you, we have discussed the available payment options for property purchase in Dubai. Take a look at them:
This one’s quite self-explanatory. The buyer has to make the entire payment in cash. It is a conventional payment method and comes with many perks for both parties involved.
The biggest advantage of making payment on cash is that it will keep debts at bay. This means that you will not have to make monthly instalments for the purchased property that usually consumes a major chunk of one’s income.
Buying a property on cash offers great convenience. There are no complications involved. You like a property, negotiate the price, authenticate the seller and make the payment. Once you have signed the contract, you will become the owner of the said property.
When buying on cash, there’s no need to manage extensive paperwork since no third party is involved apart from the buyer and seller. There are no documents pertaining to obtaining a mortgage or home loan.
Another great benefit of buying property in cash is that it is an interest-free payment. As the buyer makes the entire payment in cash, there is no interest accrued.
Making the entire payment in cash may help you negotiate the rates even more with the seller.
The biggest challenge of opting for this payment plan is the availability of cash. It goes without saying that property prices in Dubai are on the higher end of the spectrum. Thus, arranging this much cash can be tough for anyone.
It’s very uncommon for a person who has purchased a property in cash to still have their savings to bank on. Usually, when one buys a property with cash, they end up using all their savings, leaving nothing for a rainy day.
Another popular choice among payment plans for buyers, mortgage or financing option suits those who do not have a lot of cash at their disposal. Many buyers opt for this method because of the convenience it offers. However, it is important to note that the buyer has to meet the eligibility criteria to be able to secure a mortgage with the bank or private lender.
Also, they have to make the initial down payment on their own. Furthermore, the loan is not approved for the complete value of the property. For citizens, the loan to value (LTV) ratio is 80%. This means that they can get an 80% amount on the mortgage while the rest (20%) is to be arranged by themselves. If the property value exceeds AED 5 million, the LTV decreases to 70%.
On the other hand, the LTV for expats is 75% for properties valuing AED 5 million. If they exceed this amount, it goes down to 65%.
When an individual mortgages a property, they have to repay the amount mortgaged in monthly installments. Depending on the value of the property, the amount lent, and the duration of the mortgage, the total amount can be repaid in low monthly instalments for an extended duration as long as 25 years.
As stated above, not everyone has cash readily available to make payments in one go. This is where mortgage options come in handy. They allow everyone to own a home in Dubai, provided they can prove their ability to repay the loan.
Obtaining a home loan can prove to be a complicated procedure because of the paperwork associated with this option. You will have to sign many papers and arrange all sorts of documents to prove your ability to repay the loan.
Interest rate is charged on the mortgage amount, which increases the total amount to be paid.
Not everyone can get a home loan in Dubai since the applicant has to meet eligibility criteria. They must have a good credit score for their applications to be approved.
This is one of the most common payment options available for buyers and investors in Dubai. In this option, the buyer pays a major part of the price of the property after it is handed over to them.
Another variant of this payment option,’10/90’, is also available. It is usually offered for off-plan properties. The buyer has to deposit 10% of the property value initially. The remaining amount is to be paid in instalments.
This payment option is known to be easy on the budget since the buyer only has to pay a certain amount as the initial deposit. They can obtain a mortgage for the rest of the amount or pay instalments out of their own pockets, depending on their convenience.
As compared to the mortgage payment options, the process to pursue this particular plan is easy because of easy paperwork.
It is more suitable for investors who can rent the property out after handover and use the rental yield to pay the remaining amount.
The payment period for post-handover payment options is short, usually 5 years. Therefore, the instalment amount is higher.
Unlike other payment options, developers or sellers do not entertain negotiation in the post-handover method. This means the amount is fixed.
A relatively new home buying scheme in Dubai, the rent-to-own option allows the buyer to get into a tenancy contract with the landlord. This payment option is suitable for end-users and is only available for ready-to-move-in properties.
The contract is signed for 3 years, and the rent charged for the property is 15% to 20% higher than the current market value. If the tenant meets the terms of the contract successfully, they can become the buyer of the property. The deposited amount then becomes the initial down payment. For the remaining amount, the buyer can get a mortgage.
As stated above, this scheme is more suitable for buyers since it allows them to own the property even if they do not have sufficient funds to make a down payment.
It is not financially draining since the amount they pay as rent will be used as the down payment.
One of the major drawbacks of this payment plan is that the buyer will have to pay a higher amount in the long run as compared to the market value of the property.
The tenant/buyer is mostly responsible for expenses pertaining to the maintenance and repair of the property. However, if stated otherwise in the contract, the landlord takes care of these expenses.
In all, it is safe to say that there’s a payment plan available for every type of buyer in Dubai. So, before you plan to buy a property here, it’s recommended that you know about all these payment options and then make an informed decision. For further assistance, you can get in touch with experts at Zoom Property.