Despite the general financial instability, the Emirates banking sector is growing rapidly. In the last 7 years the total number of transactions has doubled. According to report by Reidin / Global Capital Partners, in 2019 55% of all real estate transactions were conducted using mortgage loans.
The legal framework of the United Arabian Emirates assigns foreigners the right to buy local real estate. This can be done either through full payment of the cost or through mortgage. Getting a real estate loan for an expat is not an easy task. To do this, the borrower must meet a number of criteria:
Meeting 2 - 3 of the above point is usually enough for the local banks.
The mortgage is not a marker of financial insolvency. Using borrowed money, you can direct your released capital in the other profitable sources - stocks, bonds, bank deposits and etc.
In the UAE the retirement age is 65 for both women and men. According to the local legislation , only the working-age people can get a mortgage, in other words, a person under 65. An expat who wants to get this loan must fall into this category.
Therefore, the last payment of the loan granted must be made prior the day when the borrower turns 65. Many lenders are ready to provide the loans for 15 - 20 years, but the older the client gets the shorter the loan term will be and, accordingly, the higher payments per month will be.
Although the UAE legislation allows foreigners to have their own property on its land, it doesn't mean that the expat can buy any kind pf property he likes. Foreigners may buy property units only at the special places of the district - so called freeholds.
Note that a foreigner has the right to buy a property unit, but not the land on which this property is built. Land plots in the UAE belong to the state and can be distributed only among the citizens of the UAE.
A mortgage can be got for both a ready-made property units and those which are under construction (so called off-plan projects). The last ones can be credited on condition that the object will be put into operation no later than 2 years from the date of the loan reception.
Buying a property at the construction stage is a more profitable investment in comparison with the ready-made one, but be ready that the lender may request an increased initial contribution for this kind of property (30 - 70 % depending on a developer and exact construction stage).
To get a mortgage in the UAE, it is important to have ideal business reputation. The country has its own credit bureaux - Al Etibad. With the help of this agency each bank can have an access to the credit history of any client. If you have ever had a difficulty with local banks it would be easy to track it down.
The first step on the way to getting a mortgage is a choice of bank. In Dubai there are not only local banks, but also foreign lenders. Each organization has its own offers and conditions for the foreigners so you will have a chance to choose the most convenient option for yourself.
You can both choose your own lender or hire an intermediary who will take all of the organisational responsibilities.
Solvency is the defining quality for every borrower. The bank must be confident that you will be able to cover all of your obligations. Upon determining the clients`s solvency, one of the indicators is the ration of the mass share of credit payments to the total income of the borrower. Besides the mortgage, the borrower may have one or more active loans. After calculating the ratio of all bank payments to income, it will be possible to understand whether the applicant will be able to take on another obligation. In the UAE this procedure is mandatory.
According to the requirements of the UAE Central Bank, the total mass share of credit payments must be less than 50% of the total monthly income of the borrower. Furthermore, when all of the payments are made, each family member must have at least AED 3 500 per month.
When the bank have been already selected, you need to receive pre-approval of the transaction. At this stage the lender checks the client`s compliance with the minimum criteria and immediately filters out the unreliable borrowers. Usually this procedure takes 3-4 working days.
During the preliminary check, the bank assesses the solvency and business reputation of the potential borrower.
For the banks of Dubai the preliminary check is not just a formality. At this stage the lender will be studying your assets and work achievements. For the verification you will have to submit the following documents:
We listed the approximate documents you need. In addition to the list above bank may request other data.
If the verification is passed, you will have 2 months to search for a suitable object. When you find the ideal property unit, you will need to sign a memorandum of intent and to pay the deposit (usually the landowner asks for the bank check). It can be only cashed out if the transaction is terminated on the buyer`s initiative.
Then the lender`s representatives enter into the case. After signing the memorandum, the independent expert examination is set which results in determining the actual price of the property. Only after that the lender provides a final decision concerning the mortgage.
Considering the mortgage application in Dubai will cost 1% of the total price of the property. In case of refusal, the bank will make total refund. Also the bank may request the insurance. It will cost 0.5 - 1 %.
After the transaction, the right for the real estate is registered in Dubai Land Department and the buyer receives the certificate. The original document remains in the bank until the loan is paid in full. For this period the payer is provided with the certified copy.
When applying for mortgage, the banks of Dubai can use both fixed and floating interest rates. In case of using a fixed scheme, the interest rate is distributed in equal parts for the entire term of the loan. In other words, the bank provides you with the annuity payment schedule with the fixed sum. The last one will consist of the loan body and accrued interest rate.
In case of floating rate, the interest rate will be charged monthly on the remaining debt. As the loan is repaid, the amount of payments will decrease every month.
The fixed interest rate is set by the bank in accordance with the Central Bank's refinancing rate (it must be at least this amount) and remains the same during the whole term of the agreement. The changes in interest rate are possible only in case of abruptly changes in the credit policy of the Central Bank.
The floating rate depends on the local financial market environment and is reviewed regularly. When using such a scheme, it is impossible to predict the exact amount of the interest rate. The amount of payments varies from month to month.
Often the mortgage interest rate is 4 - 7% per annum, depending on the exact property unit, the construction stage and the amount of the initial contribution. More often, the floating rate is used for short-term loans (up to 5 years) in order to encourage the client to pay off the debt faster. Fixed rates are used for long-term loans (more that 10 years).
Dubai banks allow client to make early repayment of the loan. In this case you will have to pay a fine of 1 % from the loan body, but not less than AED 10 000.
When applying for the mortgage for married couples, you should note that many legal peculiarities in the UAE and in the CIS countries differ dramatically. Particularly this applies to the interpretation of jointly acquired property. According to the Emirates law, the owner of the property is the one of the spouses in whose name the mortgage agreement was issued and who got all of the proper rights. If you want to share your foreign assets with your spouse, you must specify both spouses in all of the agreements and related documents.
According to the UAE Family Code, each of the spouses has the right to own a personal property. If one of the partners didn't take the ownership, then for the local government this fact would mean that he/she deliberately abandoned his/her claim to such property in favor of his/her spouse. In case of divorce these assets are not counted as jointly acquired property and do not require devision.
If the borrower delays the payment for more than 30 days, the bank will have the right to indicate it in his personal file. Such negative feedback may significantly spoil the business reputation and become a serious obstacle in case the client would like to receive a new loan.
In case the lender is unable to repay its obligations, the bank may initiate the legal proceedings against it. Take into consideration that Dubai government is strict to those foreigners who break the law. If such a case is opened against you, it is very likely that you will be forcibly collected from all your debts and then deported from the country.
When buying a property in Dubai, you will automatically receive the status of a resident. This rule is not applied to the real estate in the other emirates. To obtain residential visa, the property you purchased has to meet the following criteria:
Conclusion
The UAE laws allow foreigners to buy local real estate on a mortgage basis. To get the loan, the applicant must adhere to the following criteria:
Each bank has its own offers and mortgage projects for the foreigners. The total term of the mortgage varies from 5 to 20 years. The banks may use both fixed and floating interest rates.
