UAE buyers to pay higher upfront property costs as Central Bank issues new orders

Move promotes responsible lending, but buyers will need to prepare for a significantly larger down payment, experts say

New Central Bank rules will mark a shift in how property buyers in the UAE obtain mortgage finance. AP

The Central Bank of the UAE’s recent instruction for banks to stop financing the Dubai Land Department registration fees and real estate broker fees from February 1 is set to add to prospective home buyers’ upfront costs, experts said.

The banking regulator will no longer allow customers to include the DLD and broker fees as part of their mortgage financing, real estate and mortgage industry experts told The National.

This could result in home buyers having to set aside a larger down payment. In addition to the required 20 per cent or 30 per cent property down payment, buyers will now need liquid funds to cover the 4 per cent DLD fee and 2 per cent agent fee.

The associated costs of buying a property in Dubai include the DLD fees of 4 per cent, 2 per cent real estate commission, a fixed DLD trustee fee of Dh4,200, 0.25 per cent of the loan amount as mortgage registration fee and Dh500 title deed fee, according to Dubai-based mortgage advisory firm Money Maestro.

These have been amounting to about 6 per cent to 7 per cent of the property’s purchase price. Banks used to finance 80 per cent of these costs, which was equivalent to 5 per cent of the property value, said Rajender Prasad, managing director of Money Maestro. This accounted for 85 per cent of the property’s net loan to value. Now, the Central Bank has told banks to stick to the original LTV of 80 per cent of the collateral.

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Jason Hayes, founder and chairman of Luxury Property, a Dubai-based luxury property broker, said: “This new policy marks a significant shift in how property buyers in the UAE will approach their mortgage financing options. This new directive means in real terms, that a buyer must find a further 6 per cent plus purchasing costs, which need to be met by the buyers directly as opposed to being added to a structured mortgage loan.”

“Banks previously permitted buyers to finance these additional costs, such as the DLD registration fees of 4 per cent, transfer fees and agency commission fees of 2 per cent by way of those costs being added to the term mortgage loans. We now understand under this new directive, that these fees can no longer be included as part of the mortgage loan package as such they must be paid for separately by the buyer.”

This may have a “somewhat immediate impact” on the market as it adds to upfront costs payable by mortgage property buyers and this may result in some having to recalculate their purchasing ability, according to Mr Hayes.

Historically, the financing of these fees as part of the mortgage allowed buyers the opportunity to spread the 6 per cent and purchasing expenses over the loan's tenure, providing at the time of purchase a lighter financial burden, he said.

“For sure, this directive will impact the decision-making process for mortgage buyers. I can only presume this move by the Central Bank is part of broader efforts to promote more responsible lending practices and to reduce the risk of over-leveraging in the real estate market,” he said.

“By limiting the ability to finance non-property-related expenses, I presume they are protecting the well-established loan to value ratio, thus ensuring the lending is correctly underwritten by the property value.”

Yash Trivedi, founder of mortgage advisory company YouAE Mortgages, said that most local banks in the UAE have been financing associated property fees for many years now, while international banks have generally not offered this service.

As of now, most local banks have ceased financing associated fees, meaning that buyers will need to prepare for a significantly larger down payment that includes both the required down payment and these additional fees, he said.

This decision will have a substantial impact on the secondary market, as approximately 70 per cent of mortgage buyers preferred to have these fees included in their financing. Many buyers, despite having the cash available, chose this option to maintain some liquidity for home renovations, purchasing new furniture, or simply to have a financial buffer, Mr Trivedi said.

Calling the decision a “strategic regulatory measure aimed at promoting financial prudence” and “preventing speculative overheating”, Farooq Syed, chief executive of real estate advisory and brokerage firm Springfield Properties, said this policy aligns with international best practices and reflects the government’s commitment to a more balanced and sustainable property sector.

This directive is expected to create a shift in buyer behaviour, with increased demand for off-plan and new construction properties, he estimated.

“Developers offering flexible and creative payment plans will likely see a rise in sales as buyers look to spread costs over time. Payment plans that appeal to end users and ease the upfront financial burden will play a crucial role in maintaining market activity,” Mr Syed said.

“The policy requires buyers to have additional funds upfront, effectively raising the cash threshold for purchasing secondary market properties. This is anticipated to place downward pressure on prices in the secondary market, as demand adjusts to the new financial landscape.”

Similar policies in established markets have demonstrated that requiring buyers to bear the upfront costs of property transactions reduces speculative activity, stabilises price growth and ensures a more sustainable market structure, he added.