Risks Associated With Buying Property in Dubai

Investing in real property in Dubai can be lucrative and many people from different countries buy villas and apartments in the emirate. However, the local real estate market has certain specifics that a foreigner may be unaware of. Below we discuss some risks associated with buying real property in Dubai.

The risk of misunderstanding

There is property in Dubai that foreign nationals are not entitled to buy. They can buy property in Freehold zones and fully own it: they can sell it, rent it out, hand it down to their heir, etc.

However, there are also Leasehold zones where only citizens of the UAE and some other Arab countries can buy property. Other foreigners can only rent it. The rent agreement can be signed for 99 years and then extended.

Property prices are lower in Leasehold zones than they are in Freehold zones. You have to find out about the status of the piece of property that you are considering as an investment object.

Reliability of the developer

Regardless of what type of property you are considering (off-plan or completed), you should not buy it ‘by the picture’. You have to visit the site and see a representative of the developer or a realtor. You should also compare the property to other properties in the neighborhood.

If you are looking for an apartment in a residential complex that has been lived in, you’d better talk to its residents and the management company to find out how comfortable living there would be.

When talking to agents and developers, you have to make sure that the property is registered with the Real Estate Regulatory Agency (RERA) in the country. The authorities control the developers but there will always be cheaters around.

Choice of district

Are you planning to live in your house/ apartment in Dubai or are you planning to rent it out? The choice of the district will depend on the answer to this question.

If you would like to live in Dubai, you can consider buying a villa in a quiet neighborhood with few residents. However, if you would like to let your property on a lease, a villa in the outskirts of the city would not be the best choice.

Rent from a villa will bring you about 7% per year and rent from an apartment in the city center will bring you up to 12%. The difference is significant. An expensive apartment in downtown Dubai will pay back within a few years and an inexpensive villa somewhere in Dubai Marina, for instance, will be paying back for a long time even though living there would be nicer.

If you want a good return on your investment, you should choose the property location carefully. Good districts to purchase rental apartments are Downtown Dubai, Dubai Marina, Dubai Festival City, City Walk, and Dubai Creek Harbour. Good districts to purchase rental villas include Palm Jumeirah, Jumeirah Golf Estates, Jumeirah Island, and Emirates Living. If you want more information about the districts of Dubai attractive for investors, you can find it here.

The quality of the property

There is a slight risk that the quality of the property may be lower than expected. To minimize the risk, you should find out about the history of the developer. You should realize that developers in Dubai specialize in different areas of construction. If a developer has been engaged in building affordable housing before and now the company is erecting a luxury residential complex, this should put you on alert. Chances are that the quality of the residential complex is going to be lower than the quality of the buildings erected by other construction companies with more experience in building luxury accommodations.

You should also pay heed to the infrastructure around the building. Sometimes it happens that the residential building has been completed while the infrastructural objects have not. This will lower the price that you can get if you let the apartment on a lease.

Delay in construction schedule

Even though developers in Dubai pay significant fines if they fail to complete construction projects on time, they are late in most cases anyway. This is a fact that you have to live with. Probably, you should find out how far behind the schedule the developer has been before.

Overlooked costs

Some investors overlook certain costs involved in purchasing property in Dubai. In a standard situation, you will have to make the following payment in addition to the price of the apartment or villa:

  • Dubai Land Department transfer free — 4% of the property price;
  • Title Deed issuance — 500 AED ($136);
  • Sales process insurance fee — 4,200 AED ($1,100);
  • Realtor’s commission — 2% of the property price;
  • Issuance of No Objection Certificate — 5,000 AED ($1,300).

The list can be shorter or longer depending on whether you are using a mortgage or not.

In addition, you should find out about the costs of utilities. For instance, the price of electricity in some places may shock you.

There are also going to be property maintenance costs. They are usually not very high if we are talking about villas and semidetached houses but they can be high if you own an apartment. The matter is that elevators, air conditioning systems, and other equipment in a high-rise building require repairing after a few years. Thus, you should find out what is going to be included in your utility bills and what is not.

Mortgages and installment plans

Developers often offer very attractive purchase conditions such as 20/80 or 30/70. But this would be a risky plan. Suppose that you pay 20% or 30% for an apartment in Dubai and count on taking out a loan to cover the rest of the price later. If your application for a mortgage is rejected, you will have to sell your apartment and most likely at a lower price that you paid for it. By the way, debt is not an administrative but a criminal offense in Dubai.

Taxes

Dubai is a ‘tax-free’ emirate: no personal income nor capital gains tax is charged there. However, if you are not a tax resident of Dubai but a law-abiding taxpayer in another country, you will have to pay taxes at home if you rent your Dubai property out or sell it at a price that is higher than the buying price. You have to take the taxes into consideration when calculating the possible return on investment.

In brief

You have to do market research to avoid mistakes and minimize risks when buying property in Dubai. You have to have a clear understanding of what you are looking for, what developers can be trusted, and on what conditions banks would give out loans. You also have to find out all the details of making a purchase agreement in the particular case and take all the additional expenses into account. You could do it yourself, but if the UAE is a foreign country for you, it would make sense to find a knowledgeable consultant.

Alina

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