Why UAE is the best place to buy a home
Deepthi Nair /dubai khaleejtimes
Filed on February 20, 2017
Newbies favour it for attractive payment plans, low interest rates and low property prices
The UAE has been ranked as the best country globally for first-time home buyers, according to MoveHub http://www.movehub.com/blog/best-countries-for-first-time-buyers, which determined the best countries for first-time buyers using data from the Global Property Guide and the Hay’s Group Global Salary Forecast.
Property prices in the UAE experienced a slump in value of -7.96 per cent in 2016 while average real wages enjoyed a boost. However, a significant proportion of young expats in the UAE are struggling to get a foot on the property ladder, forcing them to spend copious amounts of money on renting instead.
Prospective home buyers blame the current mortgage regulations in the UAE which make it difficult for them to make a transition to ownership due to the high level of upfront deposit required. Expats are required to put down 25 per cent of the property’s value as an initial down payment before taking out a mortgage for a ready property.
“Even at a 75 per cent LTV contribution by the bank, the initial equity required by first-time home buyers is almost one-third of the property value. Stamp duty, brokerage, loan arrangement fees, mortgage registration charges, etc., can amount up to 7.5 per cent of property value,” says Manika Dhama, senior consultant at Cavendish Maxwell Property Consultants.
However, some industry experts insist it is good to put down 25 per cent of the property value as equity so that the buyer does not overleverage.
“First-time buyers would get a big boost if the Central Bank were to relax the initial equity required to 10 per cent from the current 25 per cent. There cannot be a better incentive for people to make the UAE their long-term home if they are invested in their primary residence,” says Sanjay Chimnani, managing director, Raine & Horne Dubai.
Factors incentivising first-time buyers to take the plunge are a correction in real estate prices in the UAE, attractive payment plans (weighted more towards payments post-handover), low interest rates and the availability of affordable low to mid-market units.
“UAE today more than at any point since 2012 offers the best opportunity for first-time home buyers,” adds Chimnani.
The consultancy Core estimates 50 per cent of new stock in Dubai this year to come up in suburban apartment districts such as Dubai Silicon Oasis (DSO), Dubai Sports City and Dubailand. Properties here are priced between Dh0.8 million to Dh1.5 million, making them affordable for first-time home buyers.
First-time buyers are also more likely to go for ready properties although off-plan homes come a tad cheaper and provide flexible post-handover payment plans.
“First-time buyers generally prefer ready properties as they are most likely making a transition from rent to own – directing their rental cheque towards mortgage payments. Off-plan properties may be available at a marginally lower rate but they often witness widespread delay in deliveries. It puts end-user occupiers in a potentially difficult economic situation as they have some of their savings immobilised in the project, but still have to pay a rent in the meantime,” warns David Godchaux, CEO of Core, UAE associate of Savills.
As the rental market is relatively rigid in Dubai, adjustments on rental periods is not flexible. As a result, some buyers may find themselves having to pay another full year of rent, when the handover of the unit they bought is delayed just by a few months.
“If the buyer’s objective is to start yielding rental returns immediately, then the investment should be made on ready property. However, if the buyer wants to take advantage of the high capital appreciation that normally occurs in Dubai, then he/she should invest in off-plan property,” advises Kalpesh Sampat, COO of SPF Realty.
For first-time investors, 2016 presented competitive options in the form of aggressive sales launches at Emaar South and Dubai South. Affordable residential communities on Mohammed Bin Zayed Road such as DSO, Sports City and Jumeirah Village Circle (both off-plan and ready) also have attractive buying options.
“First-time buyers looking for homes for self-use are more likely to prefer taking out a mortgage. Banks typically prefer lending against completed properties and with prices having stabilised in most areas, options in completed buildings [2BR for instance] are available at Dh700,000 and upwards,” observes Cavendish Maxwell’s Dhama.
Tips for first-time home buyers in the UAE
Always consider alternative options. You might be set on an area because you’ve heard good things about it or have already been living there. However, it is always good to step out and experience other communities that might fit your needs better for a lower price too.
Once you’ve narrowed down your preference to one area, make sure to find a property consultant who is a specialist in that area.
Consider off-plan property if you’re an investor looking for higher capital appreciation.
Common mistakes committed by rookies
First-time buyers often miscalculate the amount needed for a down payment. There are several additional costs involved over and above the advertised down payment rate such as four per cent transfer fees, one per cent mortgage fee, two per cent agent commission, etc.
People often make a decision regarding which bank to take a mortgage from too quickly without considering alternatives.
A mistake first-time buyers often make is consulting too many agents regarding a single property.
Source: SPF Realty