Alternative Payment Methods: Buying Property in Dubai

How can you finance a property purchase in Dubai besides a one-time payment – plans from the developer, mortgage lending, and the Rent-to-own scheme?

Alternative Ways to Pay 

When buying a property, depending on its purpose, you can consider several payment options, except for the repayment of the entire amount once. Dubai offers the following payment options – mortgage, buy-in, and developer payment plan.

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The most common method of financing is a mortgage. According to statistics, the UAE registered a record number of such transactions: the number of issued mortgages increased by 65% yearly. And according to payment plans, most often they fall on off-pan projects, on average, about 35-40% of sales are made quarterly. Rent-to-own is a relatively new way to buy, as long as there are no statistics on sales.

Mortgage Lending in the UAE: Types, Features, Basic Requirements of Banks

This payment method is applicable if you have a resident visa live in the territory of the Emirates and have official employment. You have the funds for the down payment and you no longer want to rent the property.

However, the process of obtaining a mortgage can be difficult for an expat: you need to be perfectly proficient in English or Arabic, including professional terminology, navigate the legislation, have a good knowledge of the market, and calculate the optimal loan maturity. Solving all these problems, choosing the most advantageous option among banking offers and competently preparing documents to get approval for the application, will help the broker in mortgage lending. 

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Types of Mortgages

• Fixed-rate mortgage. Such loans usually last from one to five years, most often for three years. At the end of this period, the bet automatically passes to the «floating». The main advantage of this type of mortgage is stability and the ability to plan your budget in advance.
• With variable interest rates. In this case, the rate changes daily – according to the proposed interbank lending rate of the Emirates (EIBOR). Accordingly, the amount of the monthly payment will also be «floating», which makes budget planning difficult. As a rule, such a rate is usually a little lower than a fixed one, but its main disadvantage is unpredictability.
• With a discounted rate. This type of mortgage is based on a standard variable rate: the bank provides a discount for a certain period of time. For example, in the first three years of the mortgage, you will pay 0.5% less than EIBOR. However this credit is not valid for the duration of the loan, but only for a limited time. Therefore, other types of mortgage lending may be more profitable in the long run.
• Offset (regulated) mortgage. Some banks offer to combine a mortgage with a savings or settlement account. Any remaining cash in this account reduces the amount of credit by the appropriate amount. In this case, interest is accrued on the reduced debt. For example, the amount of a mortgage loan is 400,000 dirhams. When 100,000 dirhams are deposited into any of the linked accounts, the credit will automatically be reduced to 300,000 dirhams. At this point, interest will be charged on 300,000 dirhams. You are free to use funds from a mortgage account in this scenario.
• Refinancing. If you find a better offer, you can transfer your mortgage to another bank. Usually, refinancing is done to obtain a lower interest rate.

Rent-to-Own Scheme: Lease with Option to Buy

This financing option is suitable for those who do not yet have enough money to pay the initial mortgage fee but want to move into their own apartment or house as soon as possible.

In Dubai, the rent-to-own (RTO) scheme is offered by most developers to attract new home buyers. The rules of Rent-to-Own (RTO) agreements can vary between developers, but typically work as follows: After signing the agreement, the client becomes a tenant and moves into a new house. The rent paid by the client is then allocated towards the future purchase of the property.

Rent-to-own rates in Dubai are typically higher than standard rent rates. But such overpayment is justified because, in the end, you will become the owner of the property. And in the case of a normal rental, the money spent would go nowhere.

Plans for the Construction of the Property

Almost all developers in Dubai offer convenient payment plans when selling off-plan housing. The value of the property is divided into several parts, which the investor must pay regularly for several years. In fact, it is an installment, and, unlike previous options, there is no need to pay additional interest.

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Saving for Real Estate Purchases

Start saving money for the purchase of real estate at least a few years before you plan to make a purchase. During this time, explore the market and consider what criteria will be key for you when choosing housing: area, size of the room, offered amenities, etc. Based on these parameters, calculate the approximate amount that you will need to have on hand, and gradually move towards the goal.