New UAE Central Bank financing rules for upfront property costs
Recent directives from the UAE Central Bank have introduced significant changes in property financing that prospective home buyers need to understand. Effective February 1, banks will no longer include the Dubai Land Department (DLD) registration fees and real estate agent commission fees in mortgage financing. This new regulation will change the financial dynamics in Dubai’s property market, leading to increased upfront property costs and fees for buyers.
Understanding Upfront Property Costs and the New Regulations: What’s Changing
The latest UAE Central Bank directives prohibit banks from financing specific property-related DLD and brokerage fees, marking a pivotal shift in the mortgage landscape.
Previously, buyers could incorporate the DLD fees, which amount to 4% of the property value, and the real estate agent/brokerage commission, typically around 2%, into their mortgage loans from UAE banks. This flexibility allowed many buyers to manage their finances more comfortably, spreading these costs throughout their mortgage loans in Dubai.
Breakdown of Upfront Costs
With the new rules in place for mortgages in Dubai, buyers must now prepare for a more substantial initial financial commitment to buy a property in Dubai.
The key costs of buying a property in Dubai include:
- DLD Registration Fees: 4% of the property value.
- Brokerage Commission: Approximately 2% of the property value + 5% VAT.
- Property Registration DLD Fee: The fee for properties below AED 500,000 is AED 2,000 + 5% VAT, and for properties above AED 500,000, it is AED 4,000 + 5% VAT.
- Mortgage Registration Fee: 0.25% of the loan amount.
- Mortgage Registration Admin Fee: AED 290
- Title Deed Fee: AED 520
These fees total an additional 6% to 7% of the property’s purchase price, significantly increasing the upfront cash required. Also, buyers must reconsider their financial planning to accommodate these changes to upfront property costs and fees.
Please remember to talk to your broker/agent before finalising the deal to confirm the exact % of commission and agent fee.
Implications for Home Buyers
The immediate impact of the Central Bank’s directive is that prospective buyers will face higher upfront property costs. This alteration in the financing structure means that individuals will now have to secure additional liquid funds to cover the DLD and brokerage fees, in addition to saving for the standard down payment in Dubai, which typically ranges from 20% to 30% of the property value.
Those still deciding between buying a property via cash or mortgage must also keep this new regulation in mind. Remember, you must deal with higher upfront property buying expenses as banks WILL NOT cover the 4% DLD fee and 2% agent fee in the offered mortgage, starting February 1, 2025.
Financial Planning Adjustments
For example, on a property valued at AED 1 million, a buyer must set aside an extra AED 60,000 to cover the DLD and brokerage fees alone. This warrants a thorough review of personal finances and may push some buyers to reconsider their purchasing power or delay their property acquisition plans.
Market Reactions
Experts suggest that this change in upfront property costs and fees could lead to a recalibration of buyer behaviour in the market. Many prospective buyers, particularly those who relied on financing these additional costs, may now seek alternative strategies or properties that offer lower upfront expenses.
Shifting Buyer Preferences
Due to the increased upfront property costs, buyer preferences for off-plan properties or new projects in Dubai will likely shift noticeably.
These options often come with more flexible payment plans, allowing buyers to spread their financial commitments over time.
The Rise of Off-Plan Properties
Developers who provide creative payment structures like 1% monthly payments may see heightened interest from buyers looking to minimise their immediate financial burden due to increased upfront expenses for buying a property.
This trend could lead to a surge in off-plan property purchases in Dubai as buyers seek to take advantage of lower initial payments while still securing their desired properties.
Long-Term Market Trends
While these regulations’ immediate effects may induce short-term volatility, analysts believe the long-term implications could result in a healthier and more sustainable property sector. By encouraging buyers to adopt a more cautious approach to financing, the UAE Central Bank aims to mitigate the risks associated with over-leveraging.
FAQs about changes in upfront property costs
How will these new regulations impact the overall Dubai real estate market?
Property prices are expected to change as the market adapts to these new conditions, especially in the secondary market. With buyers facing higher upfront expenses, there may be downward pressure on property prices as demand changes and buyers reevaluate their purchasing power.
What are some strategies buyers can use to manage these increased upfront property costs?
If you’re planning to buy property in Dubai, here’s how to adapt to the new rules:
- Reassess Your Financial Readiness: Calculate the total upfront costs, including the down payment and fees, to understand your buying power.
- Explore Developer Payment Plans: Look into off-plan properties with flexible payment schedules or incentives that reduce initial expenses.
- Partner with Industry Experts: Experienced real estate brokers and mortgage advisors can help you find the best options tailored to your needs.
- Prioritise Financial Reserves: Maintain liquidity to handle unforeseen costs, renovations or furnishing expenses.
How much is the real estate agent commission in Dubai?
Agent commission is usually 2% of the property purchase price but can vary. To help you find the right property and navigate the legalities, hire a reputable real estate agent registered with the Dubai Land Department (DLD). You can also consider working with a trusted TruBroker to find your dream property in Dubai.
How will recent changes in upfront property costs impact off-plan properties?
With the new rules increasing upfront property costs, off-plan properties are expected to gain traction among first-time buyers and investors. Here’s why:
- Flexible Payment Plans: Developers in Dubai often offer extended payment schedules, allowing buyers to spread costs over time rather than paying them all upfront.
- Fee Waivers and Incentives: Some developers may waive DLD fees or provide additional perks, easing the financial burden.
- Future Value Appreciation: Off-plan properties purchased at today’s prices have the potential for significant capital appreciation, especially with Dubai’s strong growth trajectory.
What is the minimum salary to get a home loan in Dubai?
Most banks in the UAE require a minimum monthly salary of AED 15k to consider you eligible for home loans in Dubai. Some banks allow UAE nationals with a monthly income of at least AED 10k to apply for home loans, but it is mainly subjective to bank policies.
Can foreign nationals get a mortgage in Dubai?
Non-residents can also explore mortgage options in Dubai. However, their choices are limited as very few banks deal with home loans for non-resident investors in Dubai.
Here’s all we have regarding the recent changes in upfront property costs that will take effect on February 1. To keep pace with the latest changes in UAE rules and regulations, subscribe to MyBayut.
