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Payment methods for real estate in Dubai

Способы оплаты недвижимости в Дубае

Buying real estate in Dubai is a profitable investment. The Emirate is developing by leaps and bounds, creating favorable conditions for the work and life of foreign specialists from various sectors of the economy. High earnings, stable economic development, security, and a high standard of living attract hundreds of thousands of people to the country, most of whom immediately think about how to buy and pay for real estate in Dubai. Despite high incomes, few are able to make a full payment immediately. However, the government has developed several schemes, thanks to which the opportunities of residents with average earnings have significantly increased.

Ways to buy a home

The most common payment methods for real estate are:

  • mortgage;
  • rent-to-buy;
  • payment plans from the developer.

Each option has its own positive and negative sides, but in general, each of them allows you to get your own housing or become the owner of a large property in order to organize additional earnings when further renting it out.

Mortgage

The presence of a certain amount for the initial payment is mandatory. This is usually at least 25% of the value of the selected object. It is also necessary to have about 8% of the cost available to pay for the services of contract registration.

In order to encourage new buyers to purchase real estate, the Government is constantly improving the legislative framework related to the rules for the purchase and sale of residential and non-residential premises. So, for example, until 2019, the interest rate was 5.2%, and in the current 2022 it was reduced to 3.5%. In addition, since last year, some banks have begun to practice mortgage holidays, i.e. after paperwork, the client is given a certain time interval when he can not pay contributions. This time can be spent on accumulating cash savings.

Mortgage registration is not a very simple process. The client needs to be fluent in English or Arabic, including knowledge of special terminology on accounting, banking operations. You also need to be well-versed in local laws related to the issuance of mortgage loans, know the market, be able to independently calculate (optimize) loan repayment terms, be able to fill out documents correctly so that they are approved. Most often, this is too difficult for an expat, but there are hundreds of companies specializing in providing this type of service in the country.

Houses of Dubai

Types of mortgages

  1. With a fixed rate. It belongs to the category of short–term loans with an average maturity of 1-3 years, the maximum is 5 years. If the loan is not repaid at the end of this period, the rate becomes “floating”. The main advantage is the ability to make an accurate payment plan. 
  2. With a “floating” rate. It is always lower than the fixed one, but its peculiarity is that it changes every day depending on the interbank lending rate being set. In other words, it is unpredictable, it is impossible to plan payments with it.
  3. Discount. In this case, the client is given a discount on the rate for the first few years by half a percent. But then it may become higher and against this background, other types of mortgages may be financially more profitable.
  4. Offset. An interesting option with a regulated mortgage. The client is offered to combine three accounts: mortgage, savings and settlement, thus making all the money on three deposits valid for mortgage repayment. For example, the mortgage loan amounted to 400 thousand dirhams. The client transferred 100 thousand dirhams to any of the linked accounts. In this case, interest will be accrued only on the remaining 300,000 AED. At the same time, the money from the required hundred thousand can be used.
  5. Refinancing is the right to transfer your loan to another bank if it has more favorable conditions for repayment of credit obligations.

Conditions that affect the bank’s decision

According to local legislation (Law No. 14 of 2008), expats have the right to purchase housing with a mortgage, but subject to a number of requirements:

  1. Availability of a resident visa.
  2. Permanent employment or residence in Dubai or the availability of a freelance license in this emirate. The owner of his own enterprise is also entitled to apply for a loan.
  3. The age of the buyer must be from 21 to 65 years (the age limit can be raised to 70 years if the client belongs to the category of self-employed).
  4. It is allowed to buy only in specially designated places.

To make a positive decision, it also matters:

  • total purchase price;
  • monthly income;
  • availability of other credit obligations (the total amount of all available loans, including mortgage, should be no more than half of the monthly income);
  • credit history.

What is LTV and DBR

Банк

Before approving the application, the bank will make some calculations that will help determine the solvency of the applicant. The main ones are LTV (Loan-to-value) – the credit risk ratio and DBR – the debt-to-burden ratio.

When calculating LTV, the amount of the initial payment is determined. If the price of the object does not exceed five million dirhams, the initial payment will be 20% of them, if more than 30%. If a person already has a home, then the loan will be no more than 60% of the cost, if the selected object is under construction, then only 50%.

The second important indicator is DBR: it reflects the ratio of income and expenses of the borrower. According to the laws of the UAE, this indicator must be at least 50% of the monthly income, otherwise the loan will be refused. The amount of the loan, the repayment period, and the amount of the monthly payment directly depends on the result of the calculation.

The paperwork takes no more than 10 days. The term for which the loan is granted can be from 5 to 20 years.

Stages of registration

  1. Preliminary approval. The procedure takes 3-4 days. A bank employee evaluates the applicant’s compliance with banking requirements: his income, credit history, reputation. 1% of the amount of the requested loan is charged for the work, but if the money is refused, the money is returned.
  2. Written offer. If the application is approved, the applicant will receive a letter with prescribed requirements for the provision of funds (the amount of the initial payment, monthly payments, the total repayment period).
  3. Conclusion of an agreement. After receiving the letter, the applicant is given two months to choose the object of purchase (if he has not already done so), send the information to the bank and personally appear there to sign the memorandum and deposit the deposit.
  4. Transfer of ownership. Occurs after settling all legal issues. The borrower, the representative of the bank and the seller must contact the Dubai Land Department, where a Certificate of transfer of ownership from the seller to the buyer will be issued. This document will be kept in a bank safe until the loan is fully repaid.

Payment plans after transfer

Unfinished house

This type of payment is usually offered to those who want to buy an apartment in an unfinished house. Here, the buyer of the premises partially acts as an investor in the construction. The total amount is divided by the developer into several parts, which must be paid over several years, but each to a certain number. The finances transferred to the developer before the transfer are immediately used for construction needs.

Developers divide the cost into arbitrary parts: some companies divide it into equal parts, others allow most of it to be paid after the house is put into operation. But the installment period here is small – from 2 to 5 years (rarely up to 10).

This type of payment is popular among those who are in no hurry to move in and are willing to wait a few years. The benefit lies in the fact that apartments purchased in buildings under construction are much cheaper, while after completion of construction their price increases at least one and a half times. The initial payment does not exceed 5%, and the installment plan is interest-free.

Payments 10/90

This type of payment implies that you need to pay 10% of the cost as the first payment before the transfer of the premises to the property, and the remaining 90% – after in installments.

Installments before transfer

The ratio of the first installment and the amount provided by the developer in installments can be different, for example, 60/40. This means that 3/5 of the price you need to pay in installments before the transfer of the premises to the property, and 2/5 – during the transfer. The figures paid at different stages of development are not fixed: each developer sets its own ratios. This gives the buyer more options to choose from. In addition, he gets the right to move in faster and manage the rest of the finances.

Rent-to-own

Rent-to-own

If you do not have the necessary amount of finance to make the initial mortgage payment, but you want to move into a new apartment as soon as possible, the seller can offer an option in which you rent it and immediately move in, and then you will pay rent. The point is that all the money that you pay seems to be for rent, actually goes to offset the cost of living space. When it is repaid in full, you will no longer pay rent.

The advantage of the buyer is that, in the absence of the necessary amount of financial resources, he has the right to make a minimum initial payment (no more than five percent of the price instead of 25% required when applying for a mortgage loan), move into an apartment and live, making feasible payments. The seller’s advantage is that the rent in this case will be 3-5% higher than if a person paid it without the purpose of further redemption.

In order for the transaction to be considered legitimate, the interested parties conclude an agreement in which it is prescribed that the seller grants the beneficiary the right to buy the object for several years (usually 4-5) at the market price, while allowing the buying party to live all these years in the rented premises. In the contract, a separate paragraph prescribes the total cost of the premises, which cannot be revised in the future.

The transaction can be sealed with two types of contracts:

  • optional;
  • purchase and sale agreement.

The first type has more stringent conditions. So, at the end of the term of the agreement, the buyer is obliged to buy the object. If he is unable to redeem it or simply decides to abandon it, then the money paid will not be refunded.

The second type of contract allows you to initially make clauses on partial repayment of finances in case of impossibility of redemption.

Usually the Rent-to-own agreement includes such items as:

  • the price of the object;
  • lease terms;
  • ownership for the duration of the contract;
  • penalties for violation of lease payments;
  • terms of withdrawal from the agreement;
  • the percentage of the advance to be refunded in case of termination of the contract;
  • conditions of maintenance of real estate;
  • additional conditions related to situations of sudden job loss, solvency, non-payment of a contribution, etc.

The positive aspects of Rent-to-own include:

  • low initial payment;
  • efficient use of rental payments;
  • no need to track your credit rating.

However, during the term of the contract, the market situation may change, housing prices may decrease. In this case, it becomes possible to buy cheaper housing, but you will not be able to do this, since you are already bound by a fixed price contract. The second danger lies in the fact that no one is insured against job loss, as a result of which the buyer may lose funds for rental payments at one moment.

Accumulation of savings for the purchase of housing

Financial analysis

Accumulation of finances for the purchase of an apartment or a house is not a matter of one day. Good housing with a sufficient number of rooms, modern household infrastructure, located in a good location is expensive. For ordinary employees, even with a high income, it will take several years to raise funds for the initial payment. What techniques will help you save money faster?

  1. Calculate the minimum monthly budget that will cover all the necessary expenses for food, medical care, transport, utilities. It’s better to give up everything else for a while. It is possible to save money on branded clothing, vacations at expensive resorts or hotels, trips to distant countries, organizing crowded parties. Spend only on the essentials.
  2. Open a special deposit where you deposit the saved money monthly. Their separate remote storage will protect them from accidental, impulsive spending.
  3. Keeping money in the account is an additional passive income (up to 4% per annum).
  4. If you decide to save, close all existing loans, pay off your debts, do not make new ones, even small ones.
  5. Block credit cards. This is an effective measure to combat unforeseen expenses.
  6. If you have real estate abroad, it is advisable to sell it and deposit the proceeds to your savings deposit. It is quite possible that the profit from the sale will immediately be enough for the first installment. It is advisable to convert all available securities into highly liquid assets and transfer them to the Emirates. Here they can be easily converted into money as soon as the favorable moment comes.

How to transfer money to the UAE from Russia?

In 2022, due to unprecedented pressure on Russia from the United States and European Union countries, including restrictions on the use of the SWIFT international payment system, the domestic banking sector is forced to react. Now all currency transactions are strictly controlled, and the amounts of transfers or intended for export to other countries are limited. The transfer abroad should not exceed 150 thousand US dollars, it is allowed to take no more than 10 thousand US dollars with you.

If the next package of sanctions completely disconnects Russia from SWIFT, all types of currency transactions will be completely frozen for an indefinite period.

There are still several ways to legally transfer large sums abroad:

  • when buying foreign real estate, but only in friendly countries, which include the UAE, Thailand, Uzbekistan, Turkey, Georgia, Armenia;
  • by transferring funds to cryptocurrency (however, losses will amount from 10 to 15% of the transfer amount).

If you decide to invest in real estate in one of the friendly countries, you need to provide the bank with a document confirming the intention of the transaction, and the financial institution will issue an individual permit for a large money transfer. In the UAE, money transfers via SWIFT are still available, but only through those financial and credit organizations that have not been disconnected from this payment system.

How can I pay for real estate in Dubai

  1. Select the appropriate object.
  2. Make a purchase and sale agreement with the developer.
  3. Choose a bank that is not under sanctions, for example, Tinkoff, Gazprombank.
  4. The developer must provide an invoice to the bank you specified.
  5. Choose the type of currency (it is usually prescribed in the contract of sale).
  6. The Bank will make the transfer according to the invoice.
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Vladimir Sviridov
Vladimir Sviridov
General Manager RLC Consulting
With a Postgraduate Masters in Finance from The, Moscow State University, Russia. Vladimir started his professional career as an auditor of the financial sector of EY. After that, he worked for several years in senior positions in corporate banking. In 2018-2021, he managed the finances of a large agricultural holding, and is currently responsible for strategic planning, corporate partnership and financial management in the role of General Manager of RLC Consulting GROUP in the UAE.

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