Managing New Home Costs
By Gautam Bhatia
Till not too long ago, expats in Dubai were only allowed to rent properties in most areas. The dream of owning a home you can call your own and seeing it grow over the years was merely an unaffordable dream for most.
However, the creation of housing options that appeal to the next generation of expats in the U.A.E through the declining cost of housing in general, incentives offered through secured mortgage loans with attractive interest rates and loan tenor, and capital growth on your home for resale had made buying a house financially viable and emotionally worth the investment.
Before you jump in and tell your family and spouse that you’re finally making your dream of owning a house in Dubai a reality, let’s cover the actual costs of owning your dream home. As you’ll see, these costs go beyond just your monthly mortgage repayment and are important to know off beforehand so a knowledgeable decision can be made.
Investment in your home comes with a set of expenses we’ll outline below. These are broadly divided up into 5 categories:
1. Government Expenses
The Dubai Land Department (DLD) is the government body in Dubai responsible for overseeing the purchase of a property between buyers and sellers. Registration of your transaction with the DLD must take place no more than 60 days after the purchase of the property. In addition to DLD fees, you also pay a one-time property registration fee.
If you decide to finance your home through a mortgage, a fee of 0.25% of the loan amount applies to the DLD to register a mortgage against your home.
Service fees to maintain your property once the property is transferred in your name are applicable. These are calculated on a per-square-foot basis based on the RERA Service Charge and Maintenance Index.
DLD Expenses are as follows:
- Dubai Land Department Fees – 4% of the purchase price of your home + AED 580 admin fee for apartments and offices or AED 430 for land or AED 40 for off-plans.
- Property registration Fees – For properties valued below AED 500,00, the fees charged are AED 2100. For properties values above AED 500,000, the fees charged are AED 4200.
- Mortgage Registration Fees – 0.25% of the total mortgage amount + AED 290 processing fee.
- Service Fees – Depending on the size of the property and the location. Starts from AED 2000.
2. Mortgage Expenses
If you plan to finance your home using a mortgage, consider the costs applicable to your bank. Banks take a fee to evaluate the property you are looking to purchase to set the appropriate terms and conditions for your mortgage.
If the seller of the property has a mortgage on it, a No Objection Certificate (NOC) is required to process the property transfer with the DLD. The NOC is only issued if all previous outstanding mortgages are paid off to the bank along with additional service charges of transference of the property.
These costs can be summed up as follows:
- Mortgage Arrangement Fee – 1% of the loan amount plus VAT.
- Property Valuation Fees – Between AED 2500 to AED 3500 plus VAT.
Use the following tool to calculate your monthly mortgage payments.
Find out what your approximate monthly mortgage payments will be.
3. Seller Expenses
As a buyer, you are required to pay an initial deposit to secure your purchase. Depending upon the nature of purchase (Primary or Secondary), an initial deposit anywhere between 5% to 15% must be paid to the seller via cheque. This amount is collected by a RERA registered broker who holds the deposit until the property is successfully transferred.
Make sure that existing mortgages against the property are paid for so that you can apply for a No Objection Certificate (NOC) to obtain the Title Deed for the property.
4. Insurance Fees
If you’re someone temperamentally careful, consider purchasing an additional home and contents insurance to insure yourself and your family from damage due to theft, accidents, fires, or natural disasters.
It is important to know that, unlike home insurance, life insurance is mandatory in UAE when you get a mortgage to finance your home.
Banks charge between 0.4% to 0.8% per annum on the decreasing mortgage balance, some banks may require you to pay the premium in full. External life insurance policies from accepted providers can be considerably cheaper especially if you are young and healthy. Check with your bank on their terms of life insurance, accepted providers, and exclusive deals.
These costs can be summarized as follows:
- Home Insurance – Approx. AED 1000.
- Life Insurance – Priced between 0.4% to 0.8% per annum on your loan balance, decreasing.
When giving the full picture about costs, readers often come away less interested and dejected with the subject. Don’t worry if your brain is playing psychological tricks on you, it’s normal!
Buying a home is an important moment in everyone’s life, you share the experience of going about purchasing a home with your family and friends, and it is natural to not want to let them down. Having a full picture of the costs associated with buying a home will makes you an informed and sound buyer.
I look forward to hearing from you on your experiences and challenges in buying your first home!