Buying a property is a complex exercise. First-time home buyers can be overwhelmed by the choice of property listings on the market. To complicate matters further, some of the terminology used in the market can be confusing to novice property investors.
It’s recommended that every homebuyer familiarise themselves with certain basic terms concerning the purchase of a property in the UAE. This will make you more confident as you go through the process of buying a home.
Dubai property prices, particularly in prime areas, have increased over the past 12 months on the back of the wider economic recovery in the UAE from the coronavirus-induced slowdown.
The city has reported an influx of high-net-worth individuals and its market has also been buoyed by the success of the UAE’s Golden Visa programme.
In July, Dubai recorded the highest number of sales transactions in the past 12 years, according to real estate portal Property Finder. Rising interest rates, however, are expected to taper price growth in the latter part of the year.
We spoke to property experts in the UAE about the terms homebuyers should be familiar with.
DLD and Rera
The Dubai Land Department (DLD) is a government body that handles all matters related to legalising real estate transactions in Dubai, says Karalina Charnashei, senior sales specialist for Downtown Dubai at real estate broker Better Homes.
It manages, oversees and ensures secure and transparent real estate trading in Dubai. Buyers should be aware that there is a mandatory 4 per cent fee on every sale transaction that goes to the DLD, Ms Charnashei says.
“The Real Estate Regulatory Agency [Rera] is a government body established in 2007 to regulate the Dubai property sector. It sets policies and plans for Dubai’s property sector to boost foreign investments and settle disputes between tenants and landlords,” she adds.
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Freehold or leasehold ownership
The main difference between these terms is that leasehold does not transfer full ownership to the buyer.
Leasehold allows using a property for a specific time, usually 99 years (can be extended), while freehold property offers the buyer full legal rights to occupy, lease or sell the property at any time.
In addition, it allows the homeowner to do any modifications (with approval from the developer), Ms Charnashei says.
Title deed and Oqood
The title deed is an official document that proves ownership of the described property or land. However, if a buyer is purchasing an off-plan property, they will receive an Oqood, which is a document given before the title deed as proof of ownership, Ms Charnashei says.
“Oqood automates, registers and manages off-plan property contracts in Dubai. Once the project is completed, it becomes a title deed,” says Ayman Youssef, vice president of estate agency Coldwell Banker.
This is a term used specifically during the sale of freehold properties.
It refers to the space that is part of the property, including common areas such as lifts, corridors and foyers, which cannot be sold to another person, Mr Youssef says.
Memorandum of Understanding and SPA
The Memorandum of Understanding (MoU), or Form F, is an official agreement between the buyer and the seller prepared by the estate agent.
“This is an important form because it puts a timeline for the transfer of the property and regulates its terms and conditions,” Ms Charnashei says.
A sales and purchase agreement (SPA) is also an important document in real estate buying. It is the document that legally binds the contract terms and conditions between the buyer and seller, according to Mr Youssef.
A SPA is usually prepared by a lawyer in support of the seller’s interest, but the buyer has the right to negotiate the terms and conditions as they see fit, he says.
This is a process of detecting flaws or issues before the property is finally handed over to the new owner by the developer.
There are companies that perform this procedure from a non-biased perspective, in which they conduct a thorough inspection of the home and ensure the developer fixes all the issues, Mr Youssef says.
For buy-to-let investors, Ejari is a standardised way of registering tenancy contracts in Dubai, Mr Youssef says.
Ejari is an essential document required for many government and housing-related formalities such as Dewa connection, internet services and visa formalities, he says.
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We often hear delivery people requesting a Makani number, Mr Youssef says.
“Makani is a smart navigation system that identifies a location using a number as an identification code. This number is extremely important because it allows you to share your location and also comes with features for emergency location reporting, which is useful in times of crisis,” he says.
Mortgages, LTV and Eibor
Tenure is the number of years to repay your mortgage, says Mohamad Kaswani, managing director of Mortgage Finder.
The standard tenure is 25 years, but is often capped at age 65. For example, if you are 45 years old, the repayment period will be 20 years, which will affect monthly payments. Some banks allow exceptions to this and extend the age to 70, he says.
Loan to value (LTV) denotes the ratio of a loan to the value of an asset purchased. For a property priced below Dh5 million, the maximum LTV for an overseas resident is 80 per cent and for a UAE citizen is 85 per cent. For properties priced at more than Dh5m, this falls to 70 per cent LTV for overseas residents and 75 per cent for Emiratis.
“The Emirates Interbank Offered Rate [Eibor] is the benchmark interest rate, stated in UAE dirhams, for lending between banks within the UAE,” he says.
“Some lending products are variable: Eibor plus margin. Other lending products will have a fixed rate for a number of years, followed by a reversion rate [Eibor plus margin]. For example, fixed for 4.25 per cent for three years, then the rate goes to Eibor plus 1.25 per cent [reversion rate].”
Debt service ratio is used by lenders to determine if you have the capacity to make payments on a loan or mortgage. Generally speaking, banks like to see customers’ total monthly liabilities not exceeding 50 per cent of their monthly income, Mr Kaswani says.
Your DSR will be calculated by adding the following: monthly mortgage payments and monthly instalments (personal loans and car loans) plus 5 per cent of your credit card limit, irrespective of the amount owed, he says.