The real estate market of the Gulf is often in the global news. This sector has been through a considerable number of ups and downs for a long time now. The last few decades have seen a huge improvement in the types of residential and commercial properties that have been constructed across the region. Moreover, some of the Middle Eastern countries introduced new laws and policies to attract foreign investors, especially expats from the United States and Europe.A number of British, American, Canadian, Australian, and EU nationals now own holiday homes in places such as The United Arab Emirates (UAE), Kuwait, Oman, Bahrain and Qatar (as long as certain criteria are met). However, just when things seemed to be getting a bit more stable, global concern stirred them up once more. The property market in the Middle East is again set to face uncertainty, in the wake of the US presidential election results.
The 45th president of the US has already had a considerable impact on the world, but the Middle East has arguably been affected more adversely than certain other places so far. According to a new report by property consultant Cluttons, the election of Donald Trump has already had a negative effect on the region’s real estate sector. The general weakening of the global economy coupled with falling oil prices has only aggravated the situation further. A senior partner at the consultancy, Steven Morgan, stated that while it was too early to be sure of anything, any unexpected changes made by the US president will have political implications on the property market all across the Gulf and may also shake regional confidence. He added that though they had witnessed an improvement in the price of oil as well as the value of the US dollar after an initial decline when the election results were first announced, people were being cautious about the new president’s long-term performance.
Morgan reiterated that a weaker dollar would only increase the pressure on the already stretched household finances. He was quoted saying “Inflation is already rising in the region due to cost containment measures introduced by governments as they work to cushion budgetary shortfalls. Any further contraction in oil prices will also have negative ramifications for the property markets, especially where the oil sector dominates office take up and is responsible for the bulk of new household creation.”
When it comes to making investments in the global market, the Cluttons survey showed London as the top priority pick for high net worth individuals from the Middle East for 2016. New York came in second, followed by Singapore in third place. The only other American city to feature in the top 10 was Los Angeles, coming in at eighth position. One of the revelations of this survey was that New York has dropped out of the top target locations for 2017. In fact, none of the cities in the US feature in the wish-list for Middle Eastern investors.
Instead, the Canadian city of Toronto was said to be a likely target. According to Faisal Durani, the Head of Research at Cluttons, a rising number of students from the Gulf region have been traveling to Canada and this has brought the city’s emergence to the forefront, at least for wealthy locals. He believes that Toronto also serves as a proxy location to New York; from Toronto, people can wait and observe any ramifications the result of the US election result could have on the flow of international property investments. Durani further added that at this point, the London property market still seemed like a more sound investment hub for the Middle Eastern people, mainly because it was an area they understood fairly well. However, most of the currencies are pegged to the dollar in some way. The lure of an investment in the UK may therefore be eroded to some extent if the dollar slides.
Cluttons’ survey also saw Dubai beating London to the top spot as the most preferred location for property investments in 2017. The market of this emirate is very well known. Moreover, with events such as the 2020 World Expo around the corner, the unexpected result of the US elections might just boost domestic investment activity. This will be highly welcome news for property markets all over the region.
From Morgan’s standpoint, economic cycles have the tendency to create uncertainty in the minds of people and though this year has been quite volatile, clear opportunities are visible for investors. While it is fairly evident that the uncertainty will linger for a while, markets like Dubai are likely to benefit from more inward regional investments.
Making any kind of investment decision about the Middle East at such a nascent stage is not a wise move, especially if you are not familiar with the laws and procedures. Below are a few things that you should keep in mind before you purchase property in the Gulf region, particularly the UAE.
The Purchasing Process
Foreigners can only buy real estate in the Middle East if they are at least 21 years old. Make sure that you move fast once you find the property you are interested in. If possible, engage a licensed agent or local attorney to guide you through the whole process.
The first step of the procedure is making an offer to the seller. If your offer is accepted, a formal sales contract will be drafted and agreed upon by both parties. At this stage, you will be required to pay the deposit amount, which is between 5% and 20% of the total property value. However, this amount may vary depending on the seller. After this, you should have up to 3 months to pay off the remaining amount. During this time, the seller will ensure that the property isn’t encumbered by anything that could go against what has been stipulated. When the final payment is made, the deed will be transferred to your name.
The protocol may vary if you are purchasing the property from a developer, compared to a resale from a private seller. Some of the owners may only agree to the deal if you have been “pre-approved for home financing” prior to signing the agreement.
When you buy real estate directly from a developer, it is known as an Off-Plan Purchase. As an expat, you will be asked to fill out a reservation form and submit it, along with your passport as well as the deposit amount. This form typically summarizes:
– Terms and conditions of the sales contract
– Details of the payment plan
– Personal information of the buyer as well as the seller.
Once this is done, the formal sales and purchase contract is drafted. This document is quite similar to the reservation form but it also binds both the parties to the deal.
If you are investing in a property that is still under construction, you should therefore make sure that the completion date is clearly listed in the agreement. Also spell out the compensation to be awarded if the property isn’t complete by the stipulated time period. If applicable, decide on the deadline for furnishing the premises too.
It is the buyer’s responsibility to ensure that the deed is transferred once the entire payment is made. For a property that is still under development, you can get this done at the developer’s office. The transfer of deeds for completed and registered properties usually takes place at the Land Department office.
Before the exchange of money and ownership is completed, make sure that you inspect the premises thoroughly and prepare a “snag list” of any issues that need to be addressed by the developer.
When you buy a pre-owned piece of property from a private seller, it is known as a resale purchase. Both you and the seller will need to sign a Memorandum of Understanding (MOU), which clearly spells out all the terms and conditions of the deal. This document also records the final date by which the funds should be transferred to the seller. However, an MOU isn’t binding in legal terms.
While signing the MOU, you will be required to pay the deposit. Most sellers ask for a minimum of 10% but the amount may vary, depending on what the two of you have agreed upon. Do note that this amount is not refundable, unless the seller can no longer transfer the property to you. If you have engaged an agent, the fee or commission amount is also paid when the MOU is signed.
After the financial aspect of the transaction is complete, the formal transfer of the deed can take place. Again, make it a point to inspect the property beforehand as many times as necessary, so that the seller can fix any issues.
Getting a Mortgage
As a foreigner, you may find it difficult to get a mortgage from a bank or a financial institution in the Middle East. Fortunately, the laws are a bit less stringent in places like the UAE. You can also try to arrange for a mortgage from overseas.
Before the market crash of 2008, expats with a high credit rating could easily obtain finance of up to 90% of the property cost in the Emirates. However, in the wake of the recession, most of the local and international banks have tightened their lending policies. Today, when you think about investing in this country you should be prepared to pay between 20% and 50% of the entire property value. If you are fortunate enough to get an approval, you will probably have to go through more red-tape than you would back home. The documents required generally include:
– Original passport and copies
– Proof of residence as well as address proof
– Salary certificate or evidence of stable income (to show repayment capability)
– Bank account statements for the last 3 years
Because of the past instability across the region, some lenders also ask for collateral.
The repayment of the mortgage takes place in monthly installments over a period of time. The maximum duration in the UAE is 24 years but most people prefer to opt for 15-year plans.
According to local regulations, the mortgage repayment, combined with other monthly expenses, should not exceed 35% of your net monthly income and the total mortgage amount is limited to a figure no more than 60 times the monthly combined income of the household.
A number of banks in the UAE offer “pre-approved financing”, which means that you can get your loan approved even before you decide on the property. This facility helps speed up the overall process and gives a higher level of confidence to private sellers.
Apart from the cost of the property, you should factor in the land registration fees (2% on new development), maintenance fees (fixed or variable), lawyers’ charges and the estate agent’s commissions when calculating your expenses. Also consult a local lawyer as well as an attorney in your home country to make sure you understand the tax implications of the purchase.
It is important to keep in mind your main reason for buying real estate in the Middle East, even before you start perusing the regional markets. For example, ask yourself if you are interested in living in the property or if you just purchasing it as an investment. If you are going to live in that house with your family, a villa or a big house may be more feasible, depending on your needs. However, if you are thinking about renting it out to other expats, look for options that are likely to yield the highest returns, such as a studio apartment or a 1-bedroom house. Also remember that the regulations for ownership eligibility and property purchase transactions vary from one gulf country to another.