Hidden Costs Unveiled: What You Really Pay When Buying a Home in Dubai!

What we will discuss in this blog: 

• Background:
  • Historically, expats in Dubai could only rent homes.
  • Introduction of freehold properties allowed expats to buy homes.
  • Previously, high property prices made buying difficult.
  • Now, affordable housing and declining prices make buying more feasible.
  • Monthly mortgage repayments can be less than rents.
  • Capital growth on assets is an added advantage.
• Important Note: Buyers need to be aware of all costs beyond the monthly loan payment.
• Government Fees:
  • Dubai Land Department (DLD) Fees: 4% of purchase price + additional admin fees.
  • Property Registration Fee: Varies based on property value.
  • Mortgage Registration Fees: 0.25% of loan amount + AED 290.
  • All purchases must be registered with DLD within 60 days.
  • Buyer typically pays all DLD charges.
• Agency Fees:
  • Real Estate Agent Fees: 2% of purchase price + 5% VAT.
  • Conveyance Fee: AED 6,000 to AED 10,000.
  • A good agent can simplify the buying process.
  • Conveyancers ensure legal documentation is in order.
• Mortgage Fees:
  • Bank Mortgage Arrangement Fee: 1% of loan amount + 5% VAT.
  • Property Valuation Fee: AED 2,500 – AED 3,500 + 5% VAT.
  • Buyers may need to pay out the seller’s mortgage to get a No Objection Certificate (NOC).
• Initial Deposit:
  • Typically 10% of purchase price.
  • Deposit held by authorized agent until property transfer.
• Service Fees:
  • Annual maintenance charges payable to DLD.
  • Charges vary by community and are for upkeep of common areas.
• Insurance Fees:
  • Home and Contents Insurance: Approximately AED 1,000.
  • Life Insurance: 0.4-0.8% per annum on decreasing loan balance.
  • Life insurance is mandatory for mortgages in the UAE.
  • External life insurance policies might be cheaper than in-house bank policies.

HOME BUYER’S MANUAL: Hidden Charges When Securing a Home in Dubai

Puzzled by the myriad of fees tied to home buying? Let us break it down for you…

For countless expatriates in Dubai, owning “a space to call their own” has been a long-cherished dream. Historically, the metropolis only allowed expats to lease properties, offering them a narrow spectrum of choices. However, with the advent of freehold properties, the dream of owning a residence in Dubai has become a tangible reality for many.

Previously, due to soaring property values, acquiring a residence in Dubai seemed like a distant dream for many. But now, thanks to the emergence of budget-friendly housing alternatives and a consistent drop in prices to more appealing levels, it’s becoming financially wiser to purchase rather than lease in the prevailing market scenario. It’s noteworthy that in certain cases, monthly mortgage installments can be more economical than monthly rents. Plus, there’s the bonus of appreciating value on your investment.

However, it’s crucial for potential buyers to be well-acquainted with the genuine expenses tied to home acquisition, beyond just the monthly mortgage installment. This is essential for making a well-informed financial commitment. Various fees are imposed by governmental bodies like the Dubai Land Department (DLD), as well as by real estate brokers, developers, mortgage providers, and conveyancing professionals. A detailed breakdown is provided below.

Governmental Charges:

Dubai Land Department (DLD) Fees: 4% of the buying price + AED 580 administrative charge for flats and office spaces or AED 430 for plots or AED 40 for pre-construction projects.

Property Registration Charges: For assets priced under AED 500,000: AED 2,000 +5% VAT. For those above AED 500,000: AED 4,000 + 5% VAT.

Mortgage Registration Fees by DLD: 0.25% of the borrowed sum + AED 290.

In Dubai, it’s mandatory for all acquisitions to be recorded with the DLD within a 60-day window post the deal. Failing to do so within this timeframe will render the purchase null and void. Ideally, the 4% DLD fee should be equally split between the purchaser and the seller. However, typically, the buyer ends up covering the entire 4% fee. Additionally, the buyer is responsible for the Property Registration Fee. If the property is financed through a bank loan, an extra 0.25% of the entire loan sum must be paid to the DLD to record the mortgage against the property. This charge doesn’t apply to those who buy without financing.

Brokerage Charges:

Real Estate Broker Fees: 2% of the buying price + 5% VAT.

Conveyancing Charges: Roughly AED 6,000 to AED 10,000.

Opting for a real estate agent’s services will increase your property acquisition cost by 2% plus VAT (due upon deal closure). However, the right agent can streamline your transaction. Collaborating with a proficient agent guarantees top-notch guidance throughout your Dubai real estate journey, from understanding the market to familiarizing yourself with the community or the property’s developer. They also facilitate the entire purchasing procedure from start to finish, ensuring you’re consistently updated and comprehend the associated expenses. Another buyer-specific cost is the conveyancing fee. Engaging a certified conveyancer guarantees that all paperwork, contracts, and financial dealings related to the transaction comply with the law.

The conveyancing fee is an additional expense for the buyer when availing conveyancer services. The fee typically ranges between AED 6,000 and AED 10,000. A conveyancer ensures that all legal agreements and contracts are drafted in line with UAE regulations, safeguarding the interests of all stakeholders.

Mortgage-Related Charges:

Bank Mortgage Setup Fee: 1% of the borrowed amount + 5% VAT.

Property Assessment Fee: Ranges from AED 2,500 to AED 3,500 + 5% VAT.

For those finalizing their purchase via a mortgage, the aforementioned fees are due to the bank. Some financial institutions offer the option to incorporate these initial costs into the mortgage, alleviating the initial financial strain.

It’s also pivotal to understand that when buying a property that has an existing mortgage, the buyer must first clear the seller’s mortgage to obtain a No Objection Certificate (NOC) to facilitate the property transfer with the DLD. This NOC, a legal document, confirms that the seller has settled all dues, and the developer has no reservations regarding the sale.

Initial Down Payment:

For both primary and resale transactions, buyers need to make an upfront payment to confirm the purchase. For ready-to-move properties in the resale market, the initial down payment is usually 10% of the purchase price, payable to the seller via a cheque. This sum is collected by the authorized representative (a broker registered with RERA) and is held until the successful transfer of the property. In cases where the property has an existing mortgage, the buyer must first clear this mortgage to apply for a No Objection Certificate (NOC) to secure the property’s Title Deed.

Maintenance Charges:

Post the completion of the transaction and the transfer of property ownership, buyers should account for another cost – maintenance fees. Yearly maintenance charges for a property are due to the Dubai Land Department and are based on the RERA Service Charge and Maintenance Index. This index specifies a particular fee per square foot, which varies across communities. The most recent fees can be accessed directly from the DLD’s official website. These charges cater to the maintenance of shared spaces in a building or community, such as elevators, landscaping, security measures, swimming pools, and so on.

Insurance-Related Charges:

Home and Contents Insurance: Approximately AED 1,000.

Life Insurance: Roughly 0.4-0.8% annually on the diminishing loan balance.

While home insurance isn’t mandatory in Dubai, it’s highly recommended. Home and contents insurance provides a safety net against potential losses or damages arising from theft, mishaps, fires, or natural calamities.

Life insurance is a prerequisite when availing a mortgage in the UAE. The premiums for life insurance are a recurring expense for homeowners with a mortgage and should be incorporated into their financial planning. Most banks levy this charge monthly, separate from the loan. Typically, banks charge between 0.4% to 0.8% annually on the reducing mortgage balance, and some might require the policy to be prepaid for the entire year. While many banks offer their in-house life insurance policies backed by prominent international life insurance firms, in numerous instances, opting for an external life insurance policy can be significantly more economical, especially for younger and healthier individuals. The specifics and scenarios differ, and the bank or other mortgage providers can offer guidance on the available choices.

Frequently Asked Questions

Q1. Is investing in Dubai real estate a good decision?

Dubai stands as one of the most rapidly advancing metropolises globally. Given the escalating demand for homes in the city, the potential for property investment returns is predicted to grow. Investing in Dubai’s real estate is a commendable choice. The city, adorned with breathtaking waterfront vistas, towering skyscrapers, and other architectural marvels, presents a diverse array of property options catering to all financial capacities. With each day, Dubai is setting new standards for opulent living.

Q2. Should I factor in the expenses of a solicitor when purchasing a flat in Dubai?

Engaging a solicitor or a conveyancing attorney can significantly streamline your property acquisition journey. These professionals possess profound insights into the Dubai market and can guide you through the requisite documentation and protocols established by the Dubai authorities. While it’s not obligatory, enlisting the services of a conveyancing attorney is recommended to facilitate a hassle-free property transaction in Dubai.

Q3. Is it permissible for non-nationals to own real estate in Dubai?

Absolutely, non-nationals are permitted to procure properties in Dubai, specifically within the designated freehold zones. Dubai boasts a plethora of such freehold regions where foreign nationals can exercise property ownership rights. Here’s a compilation of Dubai’s freehold areas.

Q4. Does Dubai impose property-related taxes and duties?

Dubai doesn’t impose any property taxes, and there’s no obligation for inheritance or income tax either. Nonetheless, those purchasing properties are required to cover a stamp duty, which typically fluctuates between 1% and 7% of the property’s acquisition value in the UAE.