Buying a home is a huge financial commitment. For the majority of people in the UAE who wish to buy a property here, it’s often challenging to save for the down payment. However, the reduction of the loan-to-value ratio for first-time homebuyers this year by the Central Bank of the UAE has simplified the process for aspiring property owners.
In March, the central bank issued a decree allowing UAE banks to increase the LTV for first homebuyers by 5 per cent for expatriates and Emiratis. This means that expatriates can borrow up to 80 per cent of the property purchase price with a 20 per cent down payment and UAE nationals up to 85 per cent and a 15 per cent down payment.
Interest rate reductions in the past few months from the US Federal Reserve and subsequently the Central Bank of the UAE have also resulted in attractive mortgage rates.
“With current LTV set at a maximum of 80 per cent for expat first homebuyers and record low interest rates, a down payment of Dh80,000 could fetch a home worth Dh480,000 with monthly mortgage repayments less than Dh2,000,” says Haider Tuaima, head of real estate research at ValuStrat, a real estate consultancy.
Property prices in Dubai have been gradually declining since September 2014, primarily because of an oversupply of units. Sales of homes priced under Dh500,000 comprised 23.9 per cent of the market in August, according to Property Monitor. Sales of homes below Dh1 million made up 52.8 per cent of August transactions.
Mr Tuaima advises homebuyers to negotiate a deal with the seller for the best price. “It’s a buyers’ market and up to 20 per cent price discounts can be achieved. This will help mitigate against purchase and mortgage costs.”
How one expat saved for his down payment
Within the first few months of arriving in the UAE in 2013, Sabarrish Srinivisan and his wife, Kinnari Thakkar, realised that paying rent was not beneficial for their financial futures. They compared paying equated monthly instalments against rent and realised they should buy a property rather than spend their hard-earned money on rent.
“I was in a company where I had good growth opportunities and long-term potential. This job security was crucial in helping me decide that it would be worth getting a property in the UAE,” says Mr Srinivisan, who is a marketing manager with a healthcare and optical retail chain.
In 2014, the couple reviewed their lifestyle expenses to save enough for a down payment on their first home in the UAE. They did not buy a car and used the Dubai Metro instead, which resulted in massive savings. The couple also lived in a rented studio for two years and then a one-bedroom apartment for another two years, ensuring that their rent never exceeded 20 per cent of their total income.
"We also set aside the amount of money we would have paid as taxes in our home country in National Bonds and another savings account. We had a policy of never taking any other loans or using the credit card beyond its limit. Four years of dedicated savings and investment allowed us to save enough for the down payment," Mr Srinivisan, 32, tells The National.
In 2017, the couple purchased a two-bedroom apartment worth Dh1.4 million in Dubai Marina. The monthly mortgage instalment, building maintenance cost and insurance costs are equivalent to what they would have paid as rent for the same property, he adds.
Mr Srinivasan recommends aspiring homeowners keep their down payment savings in a short- or mid-term savings account or in National Bonds. “Make a plan and stick to it," he says. "It is very easy to splurge or dip into savings if it is easily available. Put it aside, keep adding on to it and let it grow.”
The homeowner adds that in order to save, you need every family members' support to identify your priorities, as well as writing down all monthly expenses to identify areas where you are wasting money.
Mr Srinivasan also recommends choosing a rental property that is smaller than what you plan to buy, saying it will help you save more and minimise the temptation to buy too much furniture.
“Ensure you have small vacations and other comforts as part of your plan. It is important to make special moments even when on a budget,” he says.
We speak to a number of financial experts, who recommend eight ways to help you save for your down payment and ultimately buy a property in the UAE.
1. Find a good savings account
It’s important to open a savings account. You need to be strict about setting aside a set amount or percentage of your salary every month and depositing it into a dedicated savings account.
“It is worth doing some research into whether there are any favourable savings accounts available. Given the current low interest rate environment, it may be more difficult to find a savings account paying high returns, but there will be some accounts which are more beneficial to you than others,” says Richard Boyd, director at Mortgage Finder.
You could also set up a standing instruction that moves funds from your current account into a separate savings account the moment your salary is credited, says Ambareen Musa, founder and chief executive of Souqalmal.com.
However, Mr Tuaima from ValuStrat says you should be careful to never use these savings for any other purpose than the down payment.
2. Create a monthly budget
Set yourself a monthly budget that will allow you to focus on your financial priorities and keep track of your overall spending.
“Since your home down payment is one of your top priorities, you can dedicate a percentage of your income towards it, based on the amount you need to collect and the timeframe you have to collect it,” Ms Musa says.
3. Review your spending
Scrutinise your spending habits to understand where your money is going, then identify areas where you can easily make changes that will allow you to save more each month. You will have to put unnecessary spending on hold, especially on luxuries and high ticket items.
“You may have to make some cutbacks to ensure you can save the money for a down payment, without spending a lifetime slogging towards it. So, if that means you have to skip your fancy annual vacation or not upgrade your car, you should be willing to do it,” says Ms Musa.
You can also review monthly subscriptions, lower weekly shopping bills or cut down on eating out and reduce regular bills, such as changing your mobile phone package, Mr Boyd recommends.
4. Downsize your rental accommodation
Rent often accounts for the biggest monthly outlay in everyone’s budgets. “If you are currently renting, it could be worth considering downsizing or moving to a cheaper location to reduce your rental costs in the short term while you save towards your down payment,” says Mr Boyd.
5. Pay down existing debt
Get rid of your current debt such as education loans, personal loans and credit card debt. This will not only help free up your income to focus on gathering the funds for a down payment, it will also boost your credit score, lower your debt-burden ratio and ensure your eligibility for home finance in the future, says Ms Musa.
6. Sell unused items
You could sell items in your wardrobe that you no longer use. This could add to your savings pot. Also, consider selling unused larger ticket items, such as cars, furniture and electronics.
“For example, if you have multiple cars in your household, which you may not necessarily need, it could be worth selling one of these and living with less, or even selling and opting to buy a cheaper model if it’s necessary to have multiple vehicles,” says Mr Boyd.
7. Account for the extras and bonuses
If you get a bonus at work, a cash gift from a relative or earn extra money from a side hustle, you could use it to achieve your down payment goal faster. “But that also means you’ll have to resist the temptation to spend it on non-crucial wants,” cautions Ms Musa.
8. Equity release, liquidate investments
Mr Boyd says that people who own property overseas could release equity from it to raise money for their down payment. He adds that if you have invested in stocks and shares, it could also be a good idea to raise cash from these investments as some allow for penalty-free withdrawals.