Property transactions in Dubai and how they work

There are 2 types of property purchase in Dubai, primary market and secondary market transactions. There are a few differences in both which will be outlined here.

Primary Market –

Primary market means purchasing a property from the property developer directly. This can be done directly or via a real estate broker. Normally, these properties have a payment plan associated with them and the customer would normally have to pay the down payment, usually 10-20% of the value of the property, to the developer. However, if someone is buying a property from the developer and the construction / progress of the property has exceeded the initial stages, the developer will usually require a larger percentage of the value of the property, in-line with the level of construction completed on the property. It’s important to note that Dubai’s Law number 8 of 2007 was issued to ensure all monies paid to developers are maintained in an escrow account in order to regulate developers and safeguard purchasers money.

When buying a property in the primary market, buyers also have to pay a Dubai Land Department registration cost of 4% of the value of the property, also known as an Oqood which is also known as a pre-title registration. This simply means that this document serves as the Title Deed of the property until it is officially handed over by the developer to the buyer. Handing over means when the developer hands over the keys of the property to the purchaser and the full and final payment for the unit has been made.

Some developers also charge a nominal fee for a no objection certificate, also known as an NOC. This is usually AED 500-1,000 dhs but can be more or less, depending on the developer.

The advantage of purchasing from a developer is that the commission fees are usually built into the price of the property which means you do not need to pay anything extra to the agent or the developer an agency fee. This fee can be anywhere from 2-6% of the value of the property.

Secondary Market –

Secondary market means buying a property from the secondary market ie; from an individual.

To purchase a ready property from the secondary market, the buyer normally has to pay the total price of the property as well as the associated costs. This can be in the form of cash from the buyer or a mortgage from the bank and cash from the buyer. In the first case, the workflow is as follows.

A  Memorandum of Understanding is signed between the buyer and the seller, also known as a contract F issued by the Dubai Land Department which is a standard agreement between the buyer and seller for the sale of the property. This document is a standard document issued by the DLD and contains several clauses that determine the relationship between the buyer and the seller before and after the sale of the property. The costs associated with selling a property for the buyer are as follows.

Assuming the buyer is purchasing a property that does not have an outstanding mortgage with a bank and themselves do not have a mortgage from the bank, they would have to pay the net selling price of the property to the seller on the day of transfer.

The seller would have to generate a no objection certificate from the developer in order to sell the unit for which the associated cost is normally AED 500-1,000, depending on the developer. This can be paid by the buyer or the seller but in the majority of cases, it is the buyer that fulfills this payment.

The other costs to the buyer would be 4% of the value of the property plus AED 580 to the Dubai Land Department as transfer fees, AED 4,200 payable to the trustee office at which the transfer is taking place and 2% commission to the broker(s) who are assisting either or both parties in the deal and finally the pro-rata service fees. Each property in Dubai has service fees associated with it, these fees are paid to the developer or their assigned property management company to maintain the building and / or community the property is in. The service fees are billed from the 1st of January to the 31st of December of that particular year. The pro-rata service fees need to be refunded to the seller by the buyer from the date of transfer to the end of the year. For example, if the service fees for a particular property are AED 12,000 which is AED 1,000 per month, and the transfer takes place exactly on the 31st of June, then the buyer would have to refund the seller AED 6,000, assuming the seller has paid the full year’s service fees to the developer.

If the Buyer has a mortgage –

If the Buyer has a mortgage, the Buyers bank would at first do a valuation of the property. Following the valuation, the bank would agree on the value of the property and provide up to 80% loan to value (LTV) of the property. The balance 20% would be payable by the buyer with cash on the day of transfer. All other associated costs remain the same as above however in this case, there is an extra charge to register the mortgage which is 0.25% of the loan amount plus AED 290 to the Dubai Land Department. There are also the costs the bank charges for the valuation which is usually AED 3,000 and for their services, normally 1% of the loan amount, however these charges can vary from bank to bank.

If the Seller has a mortgage –

If the Seller has a mortgage, the buyer would have to pay off that mortgage before proceeding to the transfer. The seller would request their bank to issue a liability letter which freezes the loan amount for a short duration, normally around 15-20 days from the date of issuance, for the buyer to pay off the loan. This may come with an early settlement of 1% issued by the bank to the seller. Once the loan is paid off by the buyer, the bank would issue a clearance certificate to the seller and both parties can proceed to a trustee office to complete the transfer of the property.

If both parties have a mortgage –

In this case, the buyers bank / mortgage would normally pay off the mortgage of the seller. The banks would have to establish a relationship for this particular property and ensure the sellers loan is paid off. In this case, it depends on how much is payable to the bank and to the seller as cash. For example, let’s assume the value of the property is AED 1,000,000. The value of the seller mortgage is AED 600,000. The buyers bank covers around AED 800,000 of AED 1m. The buyers bank would pay off the sellers mortgage of AED 600,000 and the balance AED 400,000 would be payable to the seller on the day of transfer.

Closing notes –

It’s important to note that most of the payments above must be in the form of a managers cheque or cash. The bigger payments need to be in the form of a managers cheque which can be issued from a bank for a nominal fee. Smaller fees below AED 5,000 can be made via cash. It is also important to note that Dubai remains a dynamic city with things changing all the time so please do keep an eye on changing rules and regulations in the real estate market. As usual for this and more, continue to check for informative insights into the Dubai real estate market and the only place for video tours of every listing!

Written By: Farhan Junaid Published On: 11 November 2023

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