Are you considering taking the leap from tenant to homeowner? It goes without saying that you are about to make one of the biggest commitments of your life – both financially and emotionally. To ensure the process is as rewarding and as smooth as possible, we outline the most important factors to consider so you can kick-start your journey.
What to consider
- Tenure: How long have you been in Dubai and how long do you plan to call the city home? The answers to these questions are important in estimating your potential return on investment. If you are unsure of your long-term plans or commitment to the region, renting may be more suitable for you.
- Affordability: A global norm that helps to define affordability is that your monthly housing expenses should not exceed 30% of your salary. It is also crucial to budget for upfront fees, which can be estimated at approximately 7-8% of the purchase price. As an owner, you will also have to keep up with ongoing maintenance fees as well as paying the annual service fees
|Dubai Land Department (DLD) Fees||4% of the purchase price + AED 580 admin fee|
|Property Registration Fee||For properties valued below AED 500,000: AED 2,000 + 5% VAT|
For properties valued above AED 500,000: AED 4,000 + 5% VAT
|Real Estate Agent Fees||2% of the purchase price + 5% VAT|
|Bank Mortgage Arrangement Fee||1% of the loan amount + 5% VAT|
|Dubai Land Department Mortgage Registration Fees||0.25% of the loan amount + AED 290|
|Property Valuation Fee||Between AED 2,500 – AED 3,500 + 5% VAT|
Maintenance costs:Annual maintenance charges on your property are payable to the Dubai Land Department based on the RERA Service Charge and Maintenance Index. This index determines a specific charge per square foot and varies by community. Up to date fees can be sourced directly from the DLD’s website.
- Savings: Perhaps the most important factor to consider when contemplating buying a home is your down-payment. In line with UAE Central Bank Regulations, the minimum deposit required for expats is 25% of the purchase price for properties valued at less than AED 5 million, and 20% for nationals. A personal loan obtained from a local bank cannot be used to finance your down-payment — this must come from your own savings. However, the above mentioned upfront transaction costs, agent fees and bank fees may be financed through a personal loan.
- Rental yields: Thinking longer-term, if you want to convert your home into an investment property down the line, it’s important to assess whether the projected rental income will be sufficient to cover your monthly mortgage repayment and maintenance expenses.
- Residence visa: For properties valued above AED 1 million, you may be entitled to a residency visa through home-ownership, subject to meeting certain conditions. Two types of visas are available, a 6-month multi-entry or a 2-year residency. Property owners can also sponsor a visa for their immediate family members.
For properties valued above AED 5 million, with no mortgage attached and that of which are retained for 3 years, may entitle you to a 5-year residency visa, again subject to certain eligibility conditions.
Additional things to consider…
Doing your due diligence is an important aspect of buying a home to ensure the property will keep you and your family happy for the long term.
- Location: Take into consideration the size of your family, stage of life, and lifestyle. Is the property near schools or childcare facilities? What are the approximate daily commute times from the property to your work or children’s school? Is public transport easily accessible? Are restaurants, cafes, cultural attractions, or nightlife destinations important to you? Does your chosen community have adequate options?
- Size: Again, taking into account the size of your family, is the property large enough to meet your needs? Do you have plans to expand your family in the near future? Are you looking for a spacious backyard for your children?
- Layout: Not all square footage is equal, which is where properly assessing floor-plans and layout becomes important. Are you looking for an open-plan living? Seeking spacious living areas or do you prefer larger bedrooms?
- Quality: Have you considered the age of the property? If buying off-plan, was the property built by a reputable developer? If investing in the secondary market, does the property require any renovations?
- Market conditions: Stay up to date with current market trends in your chosen community. Is it the right time to buy? Are rental prices declining? What are the current rental yields?
Costs of long-term renting versus buying your own home
To rent or buy? The age old question. The answer is often highly personal and depends on your individual financial situation.
Consider the below example.
Example: Renting Vs Buying : A 1 bedroom apartment in Downtown Dubai
The average rent for a 1-bedroom apartment in Downtown Dubai is AED 90,000 per annum, while the average sales price is AED 1,200,000 – let’s look at the numbers for both over the same 5-year time period.
Buying a 1-bedroom apartment in Downtown Dubai
|Purchase Price||AED 1,200,000|
|Down payment of 25%||AED 300,00|
|Principal amount||AED 900,000|
|Buying fees||AED 92,840|
|Agent fees||AED 25,200|
|Land department fees||AED 48,580|
|Registration trustee fee||AED 4,200|
|Mortgage valuation fee||AED 3,150|
|Mortgage processing fee||AED 9,450|
|Mortgage registration fee||AED 2,260|
|Knowledge fee||AED 10|
|Monthly mortgage payment||AED 4,628|
|Total buying costs over 5 years||AED 370,560|
Renting a 1-bedroom apartment in Downtown Dubai
|Monthly rent||AED 7,500|
|Agent commission||AED 4,725|
|Ejari fee||AED 195|
|Total rental cost over 5 years||AED 455,700|
The above calculations reveal that buying is 19% cheaper than renting longer-term.
Survey says: 50% believe buying is financially smarter than renting
Building equity, building wealth
Sure, the upfront costs of buying exceed the amount of your first 12 months’ rent cheque. However over time, this gap flattens. The main difference? With each monthly mortgage repayment you are moving closer to owning your own home. Whereas, with each monthly rental payment, the harsh reality is, you are effectively paying someone else’s mortgage.
In addition to reducing your mortgage over time, long-term retention of your property should see you witness capital appreciation. Capital appreciation is the increase in the market value of your property against the purchase price. The longer you hold the property, the greater the chances of it increasing in value, boosting your overall equity.
Becoming a homeowner is a huge milestone which requires thinking beyond simply just your down-payment. When considering investing in the real estate market, it is important to assess your long-term commitment to Dubai, analyse your rent vs buy costs inclusive of all hidden fees and charges, and do your due diligence.