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PROPERTY IN DUBAI : Expatriate Buying Property in Dubai Information

Dubai Property Market

The Dubai freehold property market is only just over three years old; during the past three years Dubai property prices have soared, rental prices have skyrocketed and international real estate investor interest in this Middle Eastern market has intensified incredibly.

But as the dust begins to settle on the first wave of frenzied property buying, flipping, re-sales and rentals it’s time to take a calm and sober look at how the Dubai property market is doing and what the future holds for investors.

The first thing to note is that not every single multi million dollar development in Dubai has faired as well as the next. For the first time in the brief history of the Dubai property market some units are sitting unsold and serious investor interest in some of the larger scale developments and certain apartment developments is waning.

The Palm islands and in particular The Palm Jebel Ali are not doing so well at the moment and for the very first time in Dubai, negative premiums have been reported in the Burj Dubai and Jumeirah Village.

The market is far from slumping however - for a start the average rental prices chargeable for residential properties in Dubai are up 37% so far in 2005 alone, proving that the demand for completed properties ready to live in is also up. And you only have to look at the classifieds sections in local newspapers to see adverts calling for completed properties with buyers ready and waiting to make cash purchases. But investors are aware that in the very near future the supply/demand shift in Dubai will begin to change.

At the moment demand for completed apartments ready for occupancy outstrips all other demand for properties in Dubai because there have been serious construction delays particularly on the more complicated and ambitious high rise developments which have led to a restriction on supply of apartments ready to live in or let out.

The population of Dubai is increasing faster than the supply of housing units at the moment thus creating greater demand than supply which in turn creates a market environment in which Dubai property prices can rise sharply.

But while these construction delays remain a serious short term issue, every single week new developments are being announced or going into the first phases of construction and it seems that some developers are oblivious to the fact that the actual physical numbers of apartments being planned and constructed currently will actually wipe out demand and create a surplus of units available in the very near future and that the continued oversupply of apartments will seal up the market for profit for a potentially prolonged period.

This knowledge is beginning to permeate the investor psyche and is leading to a more mature approach to investment in property in Dubai. Instead of rushing to buy anything affordable from the latest development to be announced, investors are starting to consider the long term attraction of certain developments from a rental or re-sale perspective and as a direct result of this fact the serious overseas interest in real estate for sale is turning its collective interest to villas and townhouses for sale in Dubai. Certain villa developments have enjoyed between 20 and 50% price increases in 2005 as investors stake their claim on larger plots of land, attractive houses and developments where families moving to live in Dubai in the future will actually want to live.

There’s no doubt about it, the Dubai real estate market has plenty of room to expand and profits will continue to be made by many investors - but now that the initial frenzy of interest is calming down, people are beginning to form a clearer long term picture of how Dubai’s property prices will fair. The emphasis is beginning to change and interest in quality villa developments is growing...after all, the property market in this emirate has to follow the basic economic rules - where supply outstrips demand profitability will be poor - but where the reverse is true and demand outstrips supply there will be profits to be made - and as more people demand villas, houses, gardens and outside spaces for sale and rent in Dubai this is where the next phase of international real estate investor focus is likely to fall.

Dubai Property Mortgages

Until recently many British homeowners interested in cashing in on the Dubai property boom considered re-mortgaging their UK homes to give them the cash needed to buy in Dubai. Dubai mortgages were elusive at best, difficult to obtain and expensive at worst - therefore the only real financing alternative was equity release.

Thankfully all that is about to change as the Dubai mortgage market matures and comes into its own in 2005.

This is in indirect but nonetheless timely response to recent media reports that many British buyers were losing out financially speaking on currency fluctuations when transferring their UK acquired finance to Dubai for their property purchase.

Until very recently in Dubai, mortgages were only offered by the major developers in conjunction with domestic lenders because the real estate market was immature and legislation was not fully in place to legalize Sheikh Mohammed bin Rashid Al Maktoom’s 2002 decree which allowed foreigners the right to buy freehold title in Dubai.

It was this very small risk relating to the fact that the necessary paperwork was still outstanding that kept the major banking players out of the mortgage market and actually allowed the likes of Amlak Finance and Tamweel to clean up in the domestic lending field.

But finally in Dubai the mortgage competition has heated up as major banking players enter the market. So far HSBC in Dubai, RakBank, Mashreqbank, The National Bank of Dubai and the Abu Dhabi Commercial Bank are all offering mortgage facilities for customers interested in buying residential property in Dubai and buy to let accommodation as well.

If you’re wondering about the effect this increase in competition will have on the property finance market as a whole in Dubai, expert opinion is in agreement that in the short term all the lenders will jostle for market domination and may be prepared to loss lead. Over the longer term increased competition will result in providers creating more competitively priced mortgage products and keeping interest rates as low as possible.

All this is music to the ears for those struggling to get onto the property ladder in Dubai as rental accommodation prices soar. Never has it been so obvious that the time is right to buy for residents in Dubai; rental prices are set to continue to rise as demand for such accommodation increases and the supply of available property fails to meet this tide of demand.

International interest in the Dubai property market is also intense and those residing in Dubai and hoping to purchase will have a fight on their hands for property as more international real estate investors flood the market each month!

So, with the ‘invention’ of mortgages in Dubai comes good news for property buyers, but the fact that demand for property is still surging ahead of supply means that there are tough times ahead for those who live in rental accommodation in Dubai and who have yet to set foot on the property ladder or who are awaiting the completion of their off plan purchases.

Buying? Ten Things To Remember

Ten points to remember before you commit:

1. Make sure the property if a Freehold ownership status

2. Upfront Deposit: Many properties are sold off-plan and usually require a 10-15 per cent deposit and agree a repayment schedule. New properties come with a ten-year warranty.

3. Go Through Developer: With re-sale properties check that the owner actually owns the property and that they have kept up with repayments. Transferring ownership of re-sale properties must be cleared with the developer.

4. Transfer Fees: You pay a transfer fee of between one and seven per cent when you transfer ownership.

5. Non-refundable Deposit: You also pay a non-refundable deposit on re-sale properties of between £3,000 and £158,000.

6. Other Fees: Buyers usually pay a two per cent commission to agents. Other fees to consider: land registration fees (2 per cent max).

7. Service Charges: Don't forget to factor in service charges and maintenance fees on the property once it's completed - a one bed flat on the Palm priced at £250,000 would set you back £2,500 per annum.

8. Inheritance Rights: Inheritance rights under UAE Law revert to laws of the country of the deceased. There is no history of land seizure, but gay buyers may encounter problems.

9. Location, Location: Be careful where you buy - as the market matures the properties on the best developments with sea views will do best. Villas are also tipped to do well.

10. Agent Fees: Buy-to-let owners will need to employ a management service, which can cost 5-10 per cent per annum.

Advantages of property purchase in Dubai

1. Despite the attractive growth the real estate market in Dubai has enjoyed in the last two years, Dubai property remain highly competitively priced and also more affordable than similar property in the UK, US and parts of Europe where the markets are at all time highs and are seen by many as unaffordable and now non-returning.

2. If you buy an apartment or house in Dubai to let out for an income, you will not be charged income tax on the rental income you receive in Dubai.

3. If you wish to profit from your property or just move on, you can sell the property and Dubai will not charge you capital gains tax on your profits.

4. Unlike elsewhere in the world you pay no stamp duty on Dubai property.

5. Furthermore, when buying most freehold property you are not subject to legal fees and survey fees making the entire process highly affordable with no hidden taxes and charges.

6. The only charge of any significance that you have to factor in is the 1.5% land registration fee which is payable upon completion.

7. International property analysts universally agree that there is huge potential for growth in the brand new real estate market in Dubai for at least the next two years.

8. The demand for rental property in Dubai is increasing strongly and steadily due to the increase in residents arriving yearly. Over 400,000 new residents arrived in Dubai last year alone and this means that demand for rental accommodation is far outstripping the supply which results in high rental yields achievable. Current rental yields average 8 - 10% per annum with these figures set to remain if not increase, and rental increases in some areas have been known to top between 25 and 35%.

9. Capital growth has reached soaring levels particularly in the last year alone and is expected to level out at 15% per annum for at least the medium term.

10. Many developers sponsor their purchasers; therefore if you buy from such a developer you will receive your residence visa.

11. The build quality, architectural standard and finish of all construction work in the Emirate are excellent with the attention to every detail world class.

12. Since 2002 when the crown prince changed the laws in Dubai foreigners now have the right to buy 100% freehold property.

13. Since 2002 property has risen at a rate of 25% per annum with the market only really heating up in 2004. The market is expected to soar over the next two years in particular making now the right time to buy to benefit from the projected levels of property investment growth.

Warning

Doing the "legals" before buying in Dubai
Article by Tim Searle, CEO, Globaleye

Regardless of your home country there certain issues you should consider before diving into the property market in the United Arab Emirates. Already we have seen foreign nationals showing every confidence in the market and many spending serious sums of money on purchasing properties here. Profits can be lost though, by a lack of forethought concerning certain issues.

We all hope that the Dubai property market continues apace and the investor will succeed handsomely. That said, leaving aside the dynamic of supply and demand, you can still lose in any property market if you fail to consider all the other factors which can have a serious impact on your returns. Few realise that those profits can be eaten up quickly by hungry tax authorities in the investor's home country by failing to structure your portfolio correctly. Proper planning can alleviate that risk and an investor's initial purchasing considerations should take into account such implications.

The Dubai property buying community holds out great expectations for the forthcoming "new lands law". This long awaited piece of legislation should enable foreign nationals to register and be issued a title deed for their ownership of Dubai property, via the local Lands Department.

The potential investor should be aware that the law is still a bit unsettled with regard to foreign ownership of real property in the UAE. While the Federal law doesn't prohibit the ownership of UAE property by a foreign national, to date, registration procedures have not yet been formulated. Developers are currently working with the Dubai Lands Department on this matter.

Under current Federal law, nothing prohibits Dubai from passing legislation permitting the foreign ownership of Dubai property, and general consensus seems to be that the "lands law" will be formally promulgated. Thus, while it appears that the Dubai lands law would not conflict with the Federal law of the UAE (and most people agree that it is unlikely that future Federal law would overturn the Dubai "new lands law"), potential investors should be cognisant that in the worst case scenario, the UAE government would have the right to issue a Federal Law to bar foreign ownership of Dubai property. Such an outcome would seem unlikely given the UAE's progressive stance and its potential for attracting foreign investment.

Aside from the federal constitutional issue about Dubai's ability to pass a law authorising foreign ownership of property, there are many other legal matters that should be considered by the foreign person wishing to buy property here.

The purchaser may be at risk with regard to the initial monies deposited. The properties in question are often not yet built, yet purchasers are paying the developers a large percentage of the purchase price. As of yet, there is no requirement under Dubai law for protection of the purchaser in the event difficulties arising with a developer who is not backed by the UAE Government. The matter is likely to be left to the contractual agreement between the purchaser and the developer. Purchasers should consider that the contract is undoubtedly drafted in favour of the developer.

There is also some uncertainty regarding the Sharia law implications of property inheritance particularly for foreign nationals. When buying in Dubai, very few investors appreciate that the legal system here is different to that they may have at home. In the event of death, the property does not necessarily pass entirely to the wife since Sharia Law (the governing law of the UAE) determines otherwise as laid down in the Koran (An-Nisa Chapter 4 para 7 onwards). The Sharia Courts govern the dissemination of the estate; they may consider the fact that you may have a Will but it all comes down to the decision of the Judge in Court. In simple terms, the dissemination of the estate is wife 1/8, daughter 1/8, son 1/4, mother & father, spouse mother & father, uncles, aunties, brothers, sisters and so on. For many, a Will is frequently overlooked and it will have to be translated and attested for the local Courts. Moreover, the instance of most investors having a translated Will, up to date or any Will whatsoever in the first place, is in my experience quite rare.

There have been examples of this situation already in Dubai. In the first instance, the Court ruled that the property should be disseminated in accordance with Sharia principles. Fortuitously, the spouse was on amicable terms with all the extended members of her family and in turn they all gave back their share after the event. In another case, the Judge ruled in accordance with the Will but insisted that that the family members showed up in Court. Those members had to make arrangements to fly in from Australia and South Africa to attend proceedings. It goes without saying that no one wants to spend time and money engaging Courts in any country particularly at such a difficult period.

In order to ensure the property is passed on to those you wish in a timely manner, an offshore structure could be established with the spouses as Directors. In the event of death, the shares of the company are passed on to the surviving spouse and beneficiaries. Although the spouse has died, the offshore company has not and an internal transfer of shares will overcome this potential Sharia issue. Remember a Will or buying in joint names will not circumvent UAE law and it is quite simple to make your property purchase Sharia friendly.

Source : ShelterOffshore.com
Source : Globaleye.com