1) FREEHOLD PROPERTY – DEFINITION
What is Freehold Property? The owner of a freehold title of real estate enjoys the most superior form of private property ownership. A freeholder is considered to be the absolute owner of the land and buildings comprised in his title; the individual has the right to occupy, use and enjoy his/her property forever (“in perpetuity”) or until he/she transfers the title to a new owner, and the individual’s heirs are entitled to inherit his/her title upon death.
2) SIZES
Studios - Size approximately 480 Sq. ft.
One Bedroom - Size approximately 716 Sq. ft.
Shops - Size varies, upwards and downwards of approximately 500 Sq. ft.
Are all the units the same size? What other sizes available?
Most studios and one-bedroom units are the same size. Some units have balconies and some do not. Sometimes the ones located on the corners of the building are slightly bigger. Retail shops on the ground floor vary in size and are priced accordingly.
3) DOCUMENTATION / AGREEMENTS / REGISTRATION & TITLE DEED
What documents are filled in to purchase a property on the primary market, i.e., directly from the developer?
The buyer of a freehold property in Dubai only needs to provide a copy of his/her passport papers to purchase a property in the primary market, i.e., directly from a developer. A company purchasing a property must provide the developer the company's registration documents (Articles of Incorporation, Registration Certificate, POA of the person signing on behalf of the company, and Board of Directors Resolution). Either entity, i.e., a person or a company, needs only to sign a property reservation contract with the developer to purchase a property.
On handover of the property to the property purchaser, the property purchaser will have to register his property at the Govt. of Dubai Lands Dept. to obtain a title deed. The property purchaser would be responsible for paying the fees to the Govt. of Dubai Lands Dept. to obtain a title deed (this normally amounts to 2% of the property value). The property value must be fully paid up so as to obtain a Title Deed from the Govt. of Dubai Lands Dept.
4) PURCHASE PROCESS
Typically, the prospective Buyer and Seller enter into an MOU, whereas the buyer commits to purchase the property and the seller commits to sell the property. In a purchase transaction, the buyer pays an initial booking deposit (of not more than AED 100,000 for villas and apartments) to the seller. If the buyer withdraws from the transaction, the buyer forfeits his booking deposit. If the seller withdraws from the transaction, the seller refunds the booking deposit amount. The buyer pays the balance considered to the seller upon transfer of the property to the buyer.
5) RE-SALE & TRANSFER
a) Can a property purchaser sell his property? Most developers allow property owners to re-sell their property; however, some have restrictions on the amount the owner must have paid the developer before re-sale. Developers usually charge owners a transfer fee of 1% to 2% of the value of original list price of the property in order to allow the transfer to a new buyer.
b) How is a transfer made? In order to allow the transfer to a new buyer, developers usually require a property owner to sign a transfer letter with the new buyer at the developer's office. Developers then usually proceed to issue a new property contract with the new buyer.
c) Does a property purchaser have to be in Dubai to get property transferred? No, a power of attorney can be appointed to someone in Dubai who may engage in the transfer formalities (the POA must to be notarized and authenticated by the UAE Embassy in the property owner's country of residence).
d) Is a power of attorney is sufficient for the all transactions to be made including transfer?
Yes, to purchase a property, a notarized POA is sufficient. To sell a property, a notarized POA + authentication by the UAE Embassy is sufficient.
6) PAYMENTS - SCHEDULE & IN FAVOUR OF WHOM
a) What are payment schedules and on-going installments? What is the currency of payment?
There are 4 payment installments methods - Payment Schedules (A, B, C, D) and there is a discount applicable for paying more upfront i.e. Payment Schedule A: Reservation Fee =10% plus further installments Payment Schedule B: Reservation Fee = 30% plus further installments Payment Schedule C: Reservation Fee = 50% plus further installments Payment Schedule D: 100% paid on reservation. All payments to the building owner must be made in AED (UAE Dirhams). 1 USD = 3.68 AED (fixed rate). The AED fluctuates against the GBP. As on the date of this report the AED 5.56 = 1 GBP.
b) What form of payment is accepted? Wire Transfer / Bankers Draft / Money Order / Credit
Card (at a later date)
c) Does the building owner issue a receipt for every payment paid? Yes.
d) Does the building owner send a statement of account to the property purchaser every month? No, a receipt is sent only when an installment is received.
e) Is there a penalty for late payments? Yes, if the property purchaser delays a payment, he is charged late payment interest at the rate of LIBOR + 4% (LIBOR is defined as Emirates Interbank Offer Rate which can be looked up in the Financial Times). If the property purchaser delays the payment of 3 installments, the seller reserves the right to cancel the sale and up to 30% of the unit’s value may be forfeited.
f) Who should the payments be made to? If the property purchaser purchases the unit without financing, then the payment is made in AED via bankers draft or telex transfer to the building owner and NOT to its agents unless specifically authorized in writing by the building owner.
7) UAE RESIDENCE VISA
a) Can all family members get a UAE residence visa: i.e. Father, Mother, Father, and children under 18 and unmarried daughters?
For apartments: a 3-year multiple entry UAE residence will be issued to the principal home property purchaser (e.g. Father) who can then sponsor his spouse and children (under 18 years of age) and any unmarried daughters above the age of 18 years. For Shops: a 3-year multiple entry UAE residence visa will be issued to the principal property purchaser (e.g. Father) who can then sponsor his spouse and children (under 18 years of age) and any unmarried daughters above the age of 18 years.
To operate the shop as a commercial business, the shop owner would require a commercial trading license obtainable from the Govt. of Dubai Economic Dept. Depending on the nature of the commercial activity in the shop, the investor would either have to set-up a limited liability company or obtain a service agent license.
The UAE Cabinet approved long-term visa system for certain expats such as entrepreneurs, specialized talents and researchers in the knowledge and science field, and outstanding students, with some conditions.
A 5-year residence visa is granted upon a minimum investment of Dh5 million, while a 10-year residence visa is provided on a minimum investment of Dh10 million, as long as non-real estate investments are not less than 60% of the total investment. Find out more here.
b) Who issues the residence visa and is it guaranteed? The Government of Dubai issues it and it is guaranteed as long as the property purchaser owns the property, clears all security and medical tests, and is not rejected by the Ministry of Labor and Social Affairs.
c) If the property purchaser is not living in Dubai but plans to in the future, what will be the procedure to obtain a residence visa? Once the property purchaser buys a property he is automatically entitled to get a residence visa. He can choose the time and date when he requires it.
d) If the property purchaser is not living in Dubai can they get a visa in a different person’s name such as their employees or other family members etc.? No, only the principal property purchaser gets a residence visa but may sponsor his/her dependents.
8) OTHER CHARGES - MAINTENANCE & PARKING
What are the maintenance and parking charges? Developers usually charge for maintenance at rates varying from AED 2 to AED 8 per year per sq. ft. of the built-up area for the unit purchased. Developers may also charge for parking and rates usually vary from AED 2000 to AED 4000 per parking bay (this is a one-time charge).
9) HOMEOWNER FINANCE – MORTGAGES
a) Is homeowner (mortgaging) financing available on freehold properties? Yes, Home financing is available on all Nakheel real estate projects from Nakheel's home finance subsidiary, Tamweel, and on Emaar projects from Emaar's home finance subsidiary, Amlak. Mashreq Bank also offers mortgages. RAKBank offers mortgages only once the project is completed. A range of other banks and finance institutions are starting to offer mortgages as well. Lending criteria varies at each institution. As of yet, no financing institution is offering mortgages on freehold developments of any private developers.
b) How do I get finance? Each financial institution has a checklist of loan criteria. The property purchaser will have to fulfill the financial institution's loan criteria and provide the necessary documentation which includes but is not limited to: Copy of passport(s) for property purchaser(s), Bank Statement(s) of property purchaser(s) for 1 year, Credit History - Credit Bureau report (EQUIFAX, D&B etc.), bankers reference, credit card report.
c) When does the financial institution start charging interest? It depends on the bank. In most cases, interest is accrued during the construction period and the property purchaser will have to pay/clear this amount on handover of the unit. Then the property purchaser will have to repay principal and interest installments for the tenure of the loan.
d) What will be the APR or Interest Rate? What is the compounding method? Depending on the bank between 5.5% to 6.5% p.a. payable on a declining principal balance. It may be monthly or quarterly.
e) What are the mortgage tenures? Between 5 to 15 years depending on the financial institution.
f) Do banks or financial institutions send the statement every period to our overseas address? Yes, which could be monthly or quarterly.
g) Who should we make the payment out to? Payments should be made out to the name of the property seller for down-payment amounts or to the financial institution for loan repayments.
h) Is a mortgage registered at the Govt. of Dubai Lands Dept.? Yes, when the property purchaser’s financing becomes a realty mortgage, it will be registered on each property at the Govt. of Dubai Lands Dept. Mortgage Section.
10) DEFAULTS
Under what conditions is default defined? Developers reserve the right to cancel the property reservation agreement and re-possess the title of the property in case of default from the property purchaser. In such a case, the property purchaser typically stands to lose the lesser of the installments paid already and 30% of the property value.
If the property purchaser delays his installment payment beyond a grace period of normally 30 days from the date when the payment is due, the property purchaser is usually charged interest at the rate of approximately 6%, and the developer typically reserves his right to cancel the contract.
11) PROJECT COMPLETION
Is there a penalty payable to the property purchaser if the project is not completed on time? Typically, developers delay the staggered payment schedule if a property is not completed on time.
12) RENTAL OF PROPERTY PURCHASED
a) After completion, what is the estimated average annual rental for units?
Studios: typically range from AED 28,000 to AED 35,000
One Bedrooms: typically range from AED 35,000 to AED 60,000
Shops: varies but typically range from AED 50,000 to AED 80,000
Property owners can expect rental yields of 6% to 10% p.a. on the value of their property. The rental agents’ charges to manage the property on behalf of the owner are approx. 10% to 12% of the annual rental amount.
b) What does the rental agent charge for property care, repair and maintenance? The rental agent's charges for care, repair and maintenance are usually actual costs + a 30% markup. The charges are borne by the property owner.
c) Is the rental market robust? Yes it may be beneficial to read local news outlets such as The National, Bloomberg Middle East, Gulf News as well as out articles on rentals and market trends.
13) SELLING
a) If the seller wants to sell his property what are the charges normally charged by sales agents? Between 1% to 2% of the property value.
b) What is the transfer fee if between family members? Same amount as above.
c) Do the property purchaser and seller need to be in Dubai at the same time to transfer a property? No, as long as the power of attorneys are properly notarized and appointed.
d) After a sale, how long is the residence visa is valid for? Normally between 30 to a max of 45 days after the property is sold to the new property purchaser, after which it is cancelled.
14) UTILITIES
a) Who pays the electricity, water and sewerage bills? The property purchaser incurs these expenses. How much? Electricity and water charges typically ranges from AED 250 to AED 500 per month i.e. GBP 36 - 73 per month or USD 68 - 136 per month. The telephone and Internet connections are separate and are charged as per actuals. Telephone hook-up normally ranges from AED 150 to AED 250 one time i.e. GBP 22 - 36, or 40 - 68 one-time charge. Internet ADSL costs approx. AED 250 per month i.e. GBP 36 per month OR USD 68 per month.
15) WHAT IS DRIVING REAL ESTATE DEMAND
a) Liberalisation of the real estate sector - expats can now own property
b) High tax-free yields on freehold property rental
c) Globalisation and its effects on property prices in metropolitan cities worldwide
d) Favourable interest rate environment
e) Mortgages & homeowner finance available
f) Granting of "permanent" residency upon purchase of freehold properties
g) Great Value - Real estate land & apartment valuations are cheap compared to international prices
h) Conducive lifestyle: safe, tax haven, secondary and tertiary home for international buyers
i) Dubai's robust economic growth: 8% p.a. (GDP)
j) Dubai's robust population growth: 5.6% p.a.
k) Large mid-income population bracket with high disposable income
l) Dubai's is the regional entrepôt & tourism center
m) UAE is an open, welcoming & tolerant state with investor-friendly business policies