How to gather the down payment to buy your first UAE property

Try asking your employer for an early gratuity release, find high-interest saving accounts or explore fractional ownership and rent-to-own schemes

Do not get into a property investment without having full clarity on your financial goal, experts say. Getty Images

Many UAE residents aim to climb the property ladder but, while a plethora of finance plans are available, saving for the down payment can be challenging.

It is worth exploring all options, including non-traditional methods such as approaching employers for early release of the end-of-service gratuity.

Natasha Hatherall, founder and chief executive of TishTash marketing and public relations agency in Dubai, allowed some of her employees to use this strategy to buy their first properties in the UAE.

“I have paid out some of my long-term employees’ gratuity, so they have a deposit for their house,” she says. “If you've been with your company a long time and have a big sum as gratuity, try having a conversation with your boss about this.”

According to Danish Qazi, senior associate at law firm BSA Ahmad Bin Hezeem & Associates, there is no provision under UAE Labour Law allowing for the early release of end-of-service gratuity.

It becomes legally payable only at the end of employment. However, some companies may introduce internal policies that allow for incentivising employees through early settlement or by extending a loan against their EOSG.

“Typically, employers in the UAE are cautious about obliging such requests, as early EOSG release can complicate financial planning and create administrative challenges. Many organisations prefer to adhere strictly to the legal guidelines and provide EOSG only upon employment termination to avoid potential risks,” Mr Qazi says.

“However, there are instances where companies, especially those with more flexible employee welfare programmes, extend loans to employees against their EOSG, particularly if an employee is facing financial hardship. This loan option is generally seen as a practical alternative, allowing the company to support the employee without affecting the final EOSG entitlement.”

Such loans are typically structured with repayment schedules deducted from the employee’s monthly salary, ensuring that the loan is gradually repaid without affecting the eventual EOSG payment, he adds.

Buying a home is a significant financial commitment. Foreign first-time homebuyers can borrow up to 80 per cent of the purchase price with a 20 per cent down payment and Emiratis up to 85 per cent with a 15 per cent deposit.

Expected interest rate cuts by the US Federal Reserve and subsequently the Central Bank of the UAE could result in attractive mortgage rates.

Investment reforms and supportive regulations for businesses are enhancing Dubai's real estate market, S&P Global Ratings said in a report last week. Factors including the rising population, residency reforms such as the golden visa and high rents are also pushing people to buy property.

Dubai’s real estate market recorded about 163,000 transactions valued at more than Dh544 billion ($148 billion) in the first nine months of this year, according to official data.

Property prices, which have risen sharply in recent years, will remain stable over the next 18 months and could decline afterwards due to increasing supply, S&P said.

Carol Glynn, founder of Conscious Finance Coaching, recommends prospective homeowners to be more intentional with their spending.

“You need to check your budgeting spreadsheet to look at where you're spending and then decide if you're going to continue to still eat out three times a week, or you want to eat out once a week and put that money towards your saving for a down payment,” she says.

“People should consider putting their money into a high-interest savings account, for example, offered by the likes of digital bank Wio, which offers you around 4.25 per cent interest.”

She advises long-term thinking for any investment. Start small, with something that doesn’t make you lose sleep, Ms Glynn advises.

Do not start an investment without having full clarity on your financial goal. Don’t overstretch yourself financially and avoid credit card debt to fund your property purchase, she warns, adding that it is important to first have an emergency fund in place.

“Property investing doesn’t need to be intimidating. Talk to people who have bought property to understand their experience,” she suggests.

Ms Hatherall says she and her business partner own a property investment portfolio that comprises three apartments in Jumeirah Village Circle in Dubai. This includes one-bedroom apartments and studios, which have yielded on average 11 per cent returns each. They plan to add two units in Arjan to their portfolio.

Ms Hatherall also owns a property on The Palm Jumeirah, with which she recently did an equity release to fund her investment properties.

She also renovates and sells properties for a profit. “My husband and I have bought and sold two properties that were our homes here in the UAE. We renovated the properties and sold them for a good profit.”

Ms Glynn recommends investors stay vigilant about the legalities if they are jointly investing in property with their friends or partners.

Louise Heatley, owner and managing director of Exclusive Links Real Estate, says prospective home buyers must apply for mortgage pre-approval. Photo: Exclusive Links Real Estate

Louise Heatley, owner and managing director of Exclusive Links Real Estate Brokers, says the first thing prospective homeowners should do is to check whether they have the money for the down payment. You do not always need to have a big deposit, she says.

“If you have, say, Dh150,000 in cash for your deposit, consider buying a studio. Studios and one-bedroom apartments are great for rental returns. If you have a higher amount, for example, Dh1 million in cash, buy a few units and build a property portfolio rather than spending it all on a Dh5 million property. Start a small portfolio and build on it,” she suggests.

“If you don’t want to look at a mortgage, maybe you can join hands with friends and jointly finance an off-plan property. We're starting to see competitive payment plans in the off-plan market. This could involve paying 50 per cent over the construction period, generally a two- to three-year term, and then the rest after or upon handover.”

Investors can also consider fractional ownership, where they can pay a small amount to buy a shareholding in a property. A risk could be the exit strategy depending on your contract, she warns. Rent-to-own schemes are another option to consider, she adds.

Ms Heatley suggests investors talk to a mortgage consultant to understand affordability and then do their research on property options. Apply for mortgage pre-approval, which is usually valid for three months. “We wouldn't put an offer on any property without the finances in place,” she says.

While everybody would prefer to buy a property in a prime location because of saleability and rental yields, it is important to check affordability to ensure you get more value for your money, Ms Heatley says.

“For instance, if you have Dh1 million, you could get a studio in Dubai Marina. But for the same price, you could also afford a two-bedroom apartment in emerging communities like Arjan.”

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The government’s initiatives such as the golden visa are helping to attract an influx of people to the UAE. “Some prices are overvalued because of the lack of supply and huge demand. They will adjust. But the rest of it is pretty much where it needs to be in terms of price,” says Ms Heatley.

“I don't think it matters so much about when you buy a property, as long as you're paying the right price at that time. It doesn't matter if the price drops 10 per cent in six months. As long as you keep the property and you're doing your financials based on the figures now, eventually the price swings back.”