Buying a property in Dubai

Dubai first opened its market to foreigners in the year 2002. The first sales of units were still transacted on the base of a 99 year lease. However, with the creation of the first artificial island, the Palm Jumeirah, foreigners were granted a contractual unrestricted freehold for the first time, based on the edict of HH Sheikh Mohammed Bin Rashid Al Maktoum.

In 2004 an amendment was announced, which should grant foreigners to purchase property freehold in designated areas and therefore an enter into the national register. With this amendment becoming legal in 2006, the first foreigners were enlisted as proprietors of property in the national register. This concession still complies only for designated Freehold Areas.

The purchase of property by expatriates in Dubai/U.A.E. is limited, thus purchase by non-GCC-citizens is only possible in the freehold areas. Purchases in other areas are reserved for U.A.E. citizens and, in some exceptional cases, for GCC citizens. The state does not give the areas of land on which the freehold properties are built to individuals, they are only sold in large plots to investors and project developers. These must present a development and usage plan in advance, which shows the buildings and their use. These developers then sell the single plots, mostly already built on, to the private owners.

IMPORTANT CONSIDERATIONS

Before deciding to buy property in Dubai, deliberate on the following imperative points:

1. Can you afford it? More importantly are you prepared for the property to go down in value as well as up? Property is just like any other investment and can fluctuate according to overall market. How long you are going to hold the property will determine whether you can be sure it will make money or not.

2. Can you afford it if the interest payments change? Lenders can alter the interest rate or the term potentially and this could have an impact on your monthly payments. Check if you can pay off the loan early and if there are any penalties in doing so. Can you change lenders at a later stage? What currency do you require?

3. Can you afford the transaction costs? Typically local lenders are charging 1% of the loan amount as a processing fee, not to mention the insurance element and booking costs too. Have you budgeted for legal, protection and any other conveyance type cost? Shop around and you may find more competitive fees.

4. What is the ongoing maintenance cost of your property and the communal areas-are they due to rise? If so, by what amount? Who controls the rise in the maintenance fees-the developer or the residents? How much is your car parking/marina berth.

5. Do you need to purchase through an offshore company or Trust? In the absence of a property law in Dubai, the Sharia Principles apply. In the event of the demise of the husband, the property may bypass the wife as the new legal owner. Also can you sell the property without restrictions? Similarly you may wish to mitigate your death tax exposure by using some form of offshore structure. Buying property in Dubai may not avoid death taxes from your home country unless correctly structured.

6. Have you sought professional help with protecting the property should a serious event occur? Life Cover, Income Protection, Critical Illness Cover, Permanent and Total Disability in their various forms should be reviewed and budgeted for. Shop around too since some companies will pay your processing costs.

7. Does the developer allow you to sell the property when you like to whomever you like? Perhaps you cannot sell until the project is complete which will preclude any profit taking if you are looking to flip your property back into the selling market rapidly.

8. What guarantees does the developer offer with regards to the quality of finish, settlement cracks and utility integrity?

We will provide a professional service from our side but it is also advisable to take guidance from a lawyer if required and finally secure sound financial advice from an independent source so the various pitfalls to buying property and financing is discussed in full.