What Investors Should Know before Buying a Property
Buying a property is a complex exercise. First-time home buyers can be overwhelmed by the choice of property listings on the market. To complicate matters further, some of the terminology used in the market can be confusing to novice property investors.
It’s recommended that every homebuyer familiarise themselves with certain basic terms concerning the purchase of a property in the UAE. This will make you more confident as you go through the process of buying a home.
Dubai property prices, particularly in prime areas, have increased over the past 12 months on the back of the wider economic recovery in the UAE from the coronavirus-induced slowdown.
The city has reported an influx of high-net-worth individuals and its market has also been buoyed by the success of the UAE’s Golden Visa programme.
In July, Dubai recorded the highest number of sales transactions in the past 12 years, according to real estate portal Property Finder. Rising interest rates, however, are expected to taper price growth in the latter part of the year.
Terms Buyers should be familiar with
DLD and RERA
The Dubai Land Department (DLD) is a government body that handles all matters related to legalising real estate transactions in Dubai. It manages, oversees and ensures secure and transparent real estate trading in Dubai. Buyers should be aware that there is a mandatory 4 per cent fee on every sale transaction that goes to the DLD.
The Real Estate Regulatory Agency [Rera] is a government body established in 2007 to regulate the Dubai property sector. It sets policies and plans for Dubai’s property sector to boost foreign investments and settle disputes between tenants and landlords.
2. Freehold or Leasehold
The main difference between these terms is that leasehold does not transfer full ownership to the buyer. Leasehold allows using a property for a specific time, usually 99 years (can be extended), while freehold property offers the buyer full legal rights to occupy, lease or sell the property at any time.
In addition, it allows the homeowner to do any modifications (with approval from the developer).
3. Title deed and Oqood
The title deed is an official document that proves ownership of the described property or land. However, if a buyer is purchasing an off-plan property, they will receive an Oqood, which is a document given before the title deed as proof of ownership.
Oqood automates, registers and manages off-plan property contracts in Dubai. Once the project is completed, it becomes a title deed.
4. Saleable area
This is a term used specifically during the sale of freehold properties. It refers to the space that is part of the property, including common areas such as lifts, corridors and foyers, which cannot be sold to another person.
5. Memorandum of Understanding and SPA
The Memorandum of Understanding (MoU), or Form F, is an official agreement between the buyer and the seller prepared by the estate agent.
A sales and purchase agreement (SPA) is also an important document in real estate buying. It is the document that legally binds the contract terms and conditions between the buyer and seller.
A SPA is usually prepared by a lawyer in support of the seller’s interest, but the buyer has the right to negotiate the terms and conditions as they see fit.
6. Ejari
For buy-to-let investors, Ejari is a standardised way of registering tenancy contracts in Dubai, Ejari is an essential document required for many government and housing-related formalities such as Dewa connection, internet services and visa formalities.
7. Mortgages, LTV and Eibor
The standard tenure is 25 years, but is often capped at age 65. For example, if you are 45 years old, the repayment period will be 20 years, which will affect monthly payments. Some banks allow exceptions to this and extend the age to 70.
Loan to value (LTV) denotes the ratio of a loan to the value of an asset purchased. For a property priced below Dh5 million, the maximum LTV for an overseas resident is 80 per cent and for a UAE citizen is 85 per cent. For properties priced at more than Dh5m, this falls to 70 per cent LTV for overseas residents and 75 per cent for Emiratis.
The Emirates Interbank Offered Rate [Eibor] is the benchmark interest rate, stated in UAE dirhams, for lending between banks within the UAE,
