Planning to finance your off-plan property using a mortgage? Here is what you should know.
A mortgage loan is taken from a bank or financial institution, to raise funds to buy real estate.
You have to finance 50% of the off-plan property value using your own funds
If you approach a bank, you can lend up to 50% against the value of the off-plan property
This percentage is known as the loan to value ratio. This basically means that if the property being purchased is say, AED 1,000,000, the maximum amount the bank will lend against that property is AED 500,000 or 50% for an off-plan purchase and the percentage will be 75% for ready property.
This applies to both UAE nationals as well as expats
Banks offer applicants who are non-residents with mortgages with an interest rate of about 4.50 %. It is a fixed interest rate, calculated using a 3-month EIBOR rate.
When purchasing a property in the UAE, additional costs associated with a real estate transaction must also be taken into account, such as the cost of appraisal of the property, the real estate commission, the transfer of land and the registration fee for the mortgage.
If more than one application for a mortgage is submitted for the same property at the same time, creditors will be classified and mortgages will be given according to the individual’s credit score.
In Dubai, the buyer and seller must meet with the Dubai Department of the Land or fiduciary of the property in order to register the transfer of title.
If you are buying from a secondary market, it is highly recommended to consult a licensed real estate agent for each real estate transaction.
There are a number of different protocols, depending on whether you are buying a property from a developer, called an "off - plan" purchase, or whether you are buying a property from a private seller called a "resale" purchase.
When you register with the Dubai Land Department ( DLD ), the DLD will issue a written or electronic mortgage document and the mortgage will be enforceable against third parties.
Banks who offer financing for off-plan property are selective of the off-plan projects they would be financing.
They only approve mortgage loans for properties that belong to Master developers like Emaar Properties, Meraas and Dubai Properties.
Occasionally they approve loans for projects belonging to certain other developers too.
Next, a no-objection certificate (NOC) must be obtained from the developer. The NOC states that the seller has paid all service charges and other fees, and that the developer has no objection to the sale. The charge for an NOC ranges from Dh500-Dh5,000, and is usually paid by the seller. Most developers require that both seller and buyer attend the NOC application procedure. At that time, the seller settles any unpaid amounts, and the buyer may be required to arrange for future service charge payments.
The buyer may also have to give the developer a deposit, which is refunded after the transfer takes place and the buyer presents a copy of the new title deed to the developer. Each developer has different NOC deposit and fee requirements, as well as processing times and validity periods, so these policies should be confirmed with the developer prior to applying for the NOC. The NOC generally takes five to seven working days to be issued. Once in hand, the parties are free to transfer ownership of the property.
The DLD only conducts transfers if both parties to a transaction are GCC nationals; all other transactions must be done through a DLD-accredited RT office. Both parties or their legal representatives, through a valid power of attorney, must attend the transfer.
The fee in all RT offices is Dh4,000 for transactions over Dh500,000, and Dh2,000 for those below this amount. Fees are payable in cash, paid by the parties as agreed. The buyer must bring the following manager’s cheques:
The full purchase price payable to the seller
The buyer’s portion of the transfer fee (4 per cent of the purchase price) as agreed between parties plus Dh580 in DLD registration charges.
The broker’s commission, if any
The buyer may also have to refund the seller for the prorated share of the services charges that were prepaid by the seller, however, this can be done through a personal cheque.
When payments have been made and all documents are verified by the trustee, the information is sent through an online system to DLD for approval. Once approved, the trustee has the parties sign the official transfer documents. Finally, the original title deed is issued and given to the buyer, along with keys and access cards for the property.
When there is an existing mortgage on the property, the loan must be settled prior to the transfer to the buyer. To do so, the seller must first request a liability letter from the lender (bank). This letter states the balance of the loan, as well as any fees and penalties. The liability letter generally has a validity period ranging from 7-15 days, depending on the bank. Therefore, it is important to time the request for the letter so that it does not expire prior to the transfer date, otherwise a new letter must be requested.
If the seller does not have the funds to settle the mortgage, then the buyer must do it. Since a cash buyer needs protection against the seller transferring a property to another person, or changing the terms of the agreement after the buyer pays off the seller’s loan, it is important to “block” the property. Once the liability letter is received, the parties must go to the RT office to block it.
The parties must bring the following documents and manager’s cheques:
Copy of title deed
Cheque for liability letter amount payable to the lender by the buyer
Cheque for 4 per cent transfer fee as agreed, plus Dh580 in registration charges payable to the DLD
Cheque for blocking fee (Dh1,520) payable by buyer to the DLD
Cheque for the seller (purchase price minus liability amount, held by the RT until the transfer is completed)
After the property is blocked, the seller delivers the cheque to the lender, although some banks require the buyer to be present as well. After the mortgage is settled, the clearance letter and original title deed are provided to the seller.
The NOC process then takes place. When received, the parties proceed to the RT office to transfer the property. The cheques are disbursed and the buyer takes the original title deed.
If a buyer needs financing, a pre-approval letter should be obtained to determine the maximum amount the bank is willing to lend the buyer. The benefit of pre-approval is twofold: buyers and brokers can set a price range when searching for a property, and sellers will take the offer more seriously. To receive the pre-approval letter, salary certificates and bank statements are required by the lender. The pre-approval letter has an expiration date, so time is of the essence for the buyer to find a property and negotiate an agreement.
Once the parties have signed the contract and the deposit is handed over, the lender will conduct a valuation or appraisal of the property’s value. The valuation fee generally ranges from Dh2,500 –Dh3,500 and is paid by the buyer.
If the property is valued for at least the purchase price, the bank issues the final offer letter (FOL) to the buyer. The FOL includes all the terms and conditions of the loan and mortgage. The buyer arranges with the lender to sign the FOL and issues security cheques to the bank, as required.
The parties then apply for the NOC. Once it is obtained, the lender schedules the transfer at its preferred RT office. The buyer must bring the following manager’s cheques:
Contribution of at least 25 per cent of the purchase price, as required by the lender and UAE Central Bank regulations, payable to seller
Mortgage registration fee equivalent to 0.25 per cent of the loan amount, plus Dh290 payable to the DLD
Cheque for the 4 per cent transfer fee as agreed, plus Dh580 payable to the DLD
Broker’s commission, if applicable
After the property is blocked, the seller delivers the cheque to the lender, although some banks require the buyer to be present as well. After the mortgage is settled, the clearance letter and original title deed are provided to the seller. The NOC process then takes place. When received, the parties proceed to the RT office to transfer the property. The cheques are disbursed and the buyer takes the original title deed.
Since there are two mortgages and perhaps two banks in this scenario, and all documents have varying processing times and expiration dates, the timing of requests for the liability letter, valuation, final offer letter and NOC is very important.
After the buyer and seller sign the agreement, the buyer’s bank conducts the valuation of the property and the FOL is signed. Next, the seller requests a liability letter from the lender. Once the liability letter is issued, it is sent to the buyer’s bank, which settles the mortgage with the seller’s bank.
After the mortgage is settled and the clearance letter and original title deed have been received, the parties apply for the NOC. When the NOC is ready, the buyer’s lender arranges the transfer.
At the transfer, the seller’s existing mortgage is released. The fee for the release is Dh1,290, which is paid by the seller. The property transfer documents are signed. The buyer provides the cheques, as described previously, and the buyer’s lender issues a cheque to the seller for the remaining balance of the purchase price.
The buyer’s mortgage is then registered and the buyer’s lender retains the original title deed until the mortgage is paid in full.
Even with more efficient procedures in place, some of the steps need to be timed correctly, or the parties risk having to spend additional time and money. It is recommended that the services of a real estate company’s in-house conveyancing team, external conveyancing company or law firm be engaged to avoid such issues.
Non-UAE residents can get mortgage from lenders operating in the UAE; however, there are some restrictions. The UAE Mortgage Cap law requires non-UAE residents to make a down payment of at least 25% of the property value (20% for UAE nationals) plus associated purchase costs. This goes up to 35% (30% for UAE nationals) plus costs for properties above AED 5 million. And if you are buying a second or third property, as an investment for example, you will need at least 40% of the property value to cover your down payment.
|Purchase Type||Purchase Price||Maximum loan-to-value ratio (LTV)||Minimum down payment|
|First property||Under AED 5 million||75%||25%|
|First property||Over AED 5 million||65%||35%|
|Second, third + property||Any price||60%||40%|
|Off plan / under construction||Any price||50%||50%|