The United Arab Emirates is home to hundreds of thousands of expats from all across the globe. Contrary to what a lot of people believe, this cosmopolitan country is a lot more tolerant and modernized than the majority of nations in the Middle East. In fact, people of all ages can settle in quite easily, without going through much of a culture shock.This affluent place offers everyone a unique experience in terms of culture, lifestyle, infrastructure, education, career opportunities and night life, regardless of their age, gender and nationality. Some of the locals and foreigners lead lives that can only be described as “luxurious”; of course, this is not necessarily the case with everyone. A few of the Emirates like Abu Dhabi (the capital) and Dubai are extremely Westernized even though the ancient traditions and values are prevalent almost everywhere. In the last few decades, the UAE has therefore become one of the top expat destinations in Asia.
Despite the huge influx of foreigners, the real estate market in this region has seen a lot of fluctuations for the last 20 years or so. In the past, people of other nationalities faced several restrictions and weren’t allowed to own property anywhere in the UAE.
Fortunately the situation changed in 2002 with the introduction of the Freehold Decree in Dubai and it is now possible for foreigners to purchase real estate in several new developments. The main objective of designing this statute was to increase international investment and place the Emirate as a global hotspot on the world map. Outsiders are therefore now allowed to buy, sell, rent and lease property at their own discretion.
Expats who had been living in rented housing properties in Dubai were overjoyed with the news. The new act meant that they could gain a higher degree of financial security and strengthen their roots in Dubai. Moreover, they would no longer have to deal with ludicrous, unjustified annual rental hikes set by unscrupulous landlords.
Soon after the decree came into effect massive construction projects along the lines of UK and US style housing were initiated all over the Emirates, mainly to attract foreign investors. Many expats paid huge amounts of money to acquire their dream home in an exotic location. Due to the high demand, property prices everywhere were on the higher side.
Unfortunately, the real estate boom that had spurted Dubai’s growth came crashing down a few years ago. Economic experts say that the market grew too big and too fast, without proper planning, because of which it spiraled out of control. Furthermore, the global recession of 2008 hit the construction industry all over the Middle East really hard, causing a lot of people to lose huge amounts of their hard-earned money.
There were many other factors that lead to the real estate crisis. While foreigners in Dubai were given the permission to own property, they didn’t have access to user-friendly mortgage facilities. For example, even today, a majority of lenders will only finance up to 70% of the property’s launch price. Buyers have to pay around 50% to 60% of the market value. Most institutes don’t consider individual properties and only agree to finance certain developments. There are a few banks that lend money to non-GCC residents. Several instances have been highlighted where non-residents have paid a 25% to 30% deposit on property, only to find out that they cannot get a loan for the rest of the amount.
These problems weren’t faced just by the investors; many of the major banks and financial institutions tightened their lending policies even further, causing some of the developers to cancel their projects. Buyers who had invested in these developments could do nothing to recover their money as builders abandoned their projects and fled the country.
Fortunately, since 2013 things have been improving to a great extent. The market, which had gone belly-up, is gradually returning to buoyancy, as the locals as well as the expats have resumed the buying and selling of their properties in Dubai.
However, a recent survey conducted by PropertyFinder.com revealed that only about 30% of the residents in the UAE were homeowners. The remaining 70% still prefer to rent houses instead of buying, even after having lived in the Emirates for over 5 years. This comes as a surprise, since property enquiries have been at their highest since 2014.
When questioned further, many of the expats cited lack of affordability and high down payment amounts as the reason for not being able to purchase property. Around 69% said that they found the prices too steep and either could not raise the required deposit or didn’t qualify for a housing loan.
The mortgage cap regulations in the UAE stipulate that buyers must pay a minimum deposit of 25% for any property that is under (Dirham) AED 5,000,000 (US $ 1,361,230; £ 1,039,587; € 1,221,162) and at least 35% for anything that costs more. In addition to the down payment, buyers are also required to pay the title deed registration cost to the Land Department, registration trustee fees, mortgage registration charges and the agent’s commission (2%). All these amounts have to be paid upfront and could add up to a huge sum.
For example, if you purchase a small house that costs AED 1,000,000 (US $ 272,246; £ 207,848; € 244,222), in addition to the deposit amount of AED 250,000 (US $ 68,061; £ 51,959; € 61,055), you will need to pay:
– AED 40,000 (US $ 10,890; £ 8,314; € 9,774) as title deed registration
– AED 4,000 (US $ 1,089; £ 831; € 977) to the registration trustee
– AED 1,875 (US $ 510; £ 390; € 458) as mortgage registration fees
– AED 20,000 (US $ 5,445; £ 4,158; € 4,891) towards the agent’s commission
The initial amount that you pay just to have the apartment booked in your name is AED 315,875 (US $ 86,000; £ 65,675; € 77,250).
In the case of an off-plan purchase, the bank agrees to pay no more than 50% of the finance. This means that you will have to pay 50% of the market value till the handover and apply for a home loan after that. In the current situation, most of the banks don’t even offer home finance options to residents drawing less than AED 10,000 (US $ 2,722; £ 2,079; € 2,444) per month.
The Chief Commercial Officer of the PropertyFinder Group, Lukman Hajje, stated that the want for purchasing real estate is clearly there but the country’s housing sector has not matured like its western counterparts because of high deposit amounts, extra fees, the cap on mortgages and strict lending policies. He reiterates that the UAE Property transaction market can be much brighter if the authorities overcome these problems.
A report published by Emirates 24-7 said that investments in the Dubai real estate sector rose by a colossal 92% in the months of April and May combined. This took the total investment in the property market up to AED 48 Billion within the first 5 months of the year. There isn’t much clarity on how many expats have purchased properties but the number of foreign nationalities that have invested is over 127.
On the other hand, there are many expats from the US, UK, Canada, Australia and South Africa who prefer renting accommodation, in spite of having the purchasing power required. Read on to find out why some people think that you should rent instead of buying in the UAE.
Short term commitment
Not all expats move to Dubai for the long haul; some of them take up long term assignments for a couple of years in the Emirates, with the intention of returning to their home countries once their contract is over. For such people, renting an apartment is a much better option, even if they have the finances to make the down payment and are eligible for a home loan. Many organizations in Dubai also try to attract expat managers by offering to pay their monthly rents.
In Dubai, tenants are usually required to sign a one-year contract. Once that is done, the rent cannot be renegotiated for this period. However, it is possible for the tenant or the landlord to terminate the agreement if there are any discrepancies with the property or in the payments. Once the lease expires, it can be renewed with new terms and conditions, as long as the landlord and the occupants are willing to do so (more often than not, with a huge hike in the rental amount).
Many owners lease out their apartments to foreigners on a short-term basis (between 1 and 6 months) but charge a much higher monthly rent.
Ease of relocation
New construction is common in Dubai and many foreigners prefer moving to a newly developed building or area as soon as it is ready to be occupied. You will only find it possible to do this if you are renting an apartment.
In fact, it is always a good idea to live in a place for at least a few months before deciding to invest in it. If you don’t like the surrounding area or notice any problems in the property, you can terminate your contract and move to better place. However, once you make a purchase, there isn’t much you can do except maybe look for a new buyer.
Lack of risk
The real estate market in Dubai has been quite volatile, to say the least. Those who purchased property in the initial freehold developments may have gotten a good deal, but many foreigners lost huge amounts of money as the projects they had put their money into were abandoned and the construction was delayed for years. While the situation isn’t the same anymore, there is no way to be sure that it will not occur again. Anyone who invests money in real estate should be aware of the risks involved in case there are fluctuations in the market.
However, a rise or dip in the real estate sector isn’t likely to have a major impact on you as a tenant. In the worst case scenario, housing rents may go up in some places, but you do have the option of looking at another location.
As a tenant, you are required to pay a security deposit as well as your rentals on a monthly basis. If you have financial problems, you can terminate your contract and get a major part of your deposit back (though it could take up to a few weeks). In such a situation, you are not obligated to continue making any more payments towards rent.
However, you cannot get access to easy cash once you invest it in a house. Even in the case of a financial problem, monthly mortgage payments have to be made or the bank will seize the property. The only option is to look for a buyer, which isn’t an easy task. The initial costs, which are usually quite high, will not be reimbursed even if you decide to incur a loss and sell the property at a lower rate.
These are just a few reasons why some expats with purchasing power prefer to rent accommodation in the UAE instead of buying. Of course, there is a downside to leasing houses on a long-term basis too! For example, most people who have been in this situation agree that they don’t feel that they have settled down completely even after spending more than 5 years in this country. Others believe that they have “given money away” for a temporary service over a period of several years, which has left them with no tangible value. Almost all tenants feel that they are at the mercy of their landlord, who can raise the rent without any justification, sell the property without prior notice, or ask them to vacate the house.