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COLIFE BLOG
Options for Buying Property in Dubai: Installments, Assignment, Mortgage. Why Investors Prefer Mortgages
Dubai is an attractive destination for real estate investors. While the market typically favors buying property outright, there are alternative methods that enable acquiring property in Dubai without the full upfront payment, offering advantageous investment opportunities.
Experts from Colife, an all-in-one solution for modern tenants, property owners, and private investors, headquartered in Dubai, have detailed all the currently available alternative purchasing methods in the city, guiding on how to choose the most suitable option in your case.
Experts from Colife, an all-in-one solution for modern tenants, property owners, and private investors, headquartered in Dubai, have detailed all the currently available alternative purchasing methods in the city, guiding on how to choose the most suitable option in your case.
Installment plan
This is a method of purchasing property where you buy directly from the developer and make payments gradually instead of paying 100% of the cost upfront.
The installment terms are simple: the interest rate is 0%, and the initial down payment starts at 20%.
The installment terms are simple: the interest rate is 0%, and the initial down payment starts at 20%.
Types of Installment Plans
- Installments during construction Example: 40-50% of the property cost is paid during the construction period and 60-50% in a single payment upon receiving the keys.
- Post-handover installments Example: 60-80% before receiving the keys. After receiving the keys, 40-20% is paid over a specified period.
In this case, the property can be rented out immediately after receiving the keys, with rental income covering the remaining cost of the apartment. This option is also suitable for those buying the property for personal use, allowing you to pay for your own property instead of a rental once you have the keys.
One downside of installment plans is the initial markup included in the property's price. Therefore, it's important to understand that a ready or similar property bought with cash can be 20% cheaper.
It's worth noting that there are ready-to-move-in properties available on the market that can be purchased in installments. These terms are offered by the developers themselves, but a discount is usually provided for 100% upfront purchase.
"Colife team always tries to find installment options for our clients with favorable down payments and with long-term post-handover installments. This way, part of the property's cost is covered by rental income, reducing the financial burden on the owner," said Olga Kalyuzhnaya, a top broker at Colife and an expert in UAE real estate.
Installment plan process
Step 1: reserve the property with a 20% down payment.
Step 2: sign the Sales and Purchase Agreement (SPA) and pay a 4% tax to the Dubai Land Department.
Step 3: register the transaction with the Dubai Land Department and obtain the Oqood (ownership certificate).
Step 4: make installment payments according to the SPA schedule.
For example, Colife Invest brokers found a studio in Al Furjan with a 6-year installment plan. In this case, 65% is paid before receiving the keys and the remaining 35% over 3 years post-handover. This area offers good rental yields, and the apartment is in Samana California 2, located right next to the metro.
"Moreover, the property is not significantly overpriced; its available for 778,734 AED. Currently, we are purchasing properties in Al Furjan for 1 million and even 1.2 million AED, so the price is indeed very good," noted Olga Kalyuzhnaya.
According to Colife analysts, the rental income from this apartment is estimated to be over 90,000 AED, with an ROI of 8.92% and an annual property value increase of an additional 7%.
Step 2: sign the Sales and Purchase Agreement (SPA) and pay a 4% tax to the Dubai Land Department.
Step 3: register the transaction with the Dubai Land Department and obtain the Oqood (ownership certificate).
Step 4: make installment payments according to the SPA schedule.
For example, Colife Invest brokers found a studio in Al Furjan with a 6-year installment plan. In this case, 65% is paid before receiving the keys and the remaining 35% over 3 years post-handover. This area offers good rental yields, and the apartment is in Samana California 2, located right next to the metro.
"Moreover, the property is not significantly overpriced; its available for 778,734 AED. Currently, we are purchasing properties in Al Furjan for 1 million and even 1.2 million AED, so the price is indeed very good," noted Olga Kalyuzhnaya.
According to Colife analysts, the rental income from this apartment is estimated to be over 90,000 AED, with an ROI of 8.92% and an annual property value increase of an additional 7%.
Assignment
An assignment involves purchasing an unfinished property from someone who originally bought it directly from the developer. In this case, the new buyer continues the installment plan of the previous buyer.
This option is often more advantageous than buying through traditional installment plans, as the property is cheaper, while still offering installment terms.
This option is often more advantageous than buying through traditional installment plans, as the property is cheaper, while still offering installment terms.
Conditions for purchasing through assignment
- Interest rate: 0%
- Initial down payment: starting from 40% (20% in rare cases)
Process of Purchasing Through Assignment
- Buyer and seller sign the sale and purchase agreement.
- The seller requests an NOC (No Objection Certificate) from the developer for the resale.
- Sign the SPA (Sales and Purchase Agreement) with the developer for the new buyer.
- The buyer issues post-dated checks to the developer if required.
- Register the transaction at the Trustee Office with a notary.
The price for this area is very low — 2,350,000 AED. Currently, Emaar no longer offers properties with post-handover installments. However, this property was purchased through an assignment some time ago, so the new buyer can also benefit from a 2-year post-handover installment plan.
The rental income from this apartment is expected to exceed 229,000 AED, with an ROI of 6.39%.
Mortgage
"A mortgage is the best way to buy an apartment in Dubai, but it comes with many restrictions," says Olga Strakhova, an analyst and broker at Colife and an expert in UAE real estate.
The main issue is that there are several restrictions for obtaining a mortgage. Only business owners in the UAE, who provide their company's financial statements for the past 2 years, or employed individuals with official employment and salary deposits from a company for at least 6 months can apply for a mortgage.
The main issue is that there are several restrictions for obtaining a mortgage. Only business owners in the UAE, who provide their company's financial statements for the past 2 years, or employed individuals with official employment and salary deposits from a company for at least 6 months can apply for a mortgage.
Additional requirements for a mortgage:
- UAE national or resident;
- Aged between 21 and 65;
- A monthly income of at least 15,000 AED for salaried individuals and 25,000 AED for self-employed individuals (the minimum salary requirement for a home loan in Dubai may vary depending on the bank).
Mortgage conditions:
The main condition is that mortgages are available for completed properties, meaning you can use a mortgage to purchase a property on the secondary market or off-plan real estate, but only if the building is already completed and the keys are being handed over. You can also finance the final installment with a mortgage.
For example, if the payment plan is 50% during construction and 50% upon completion, the buyer pays the initial 50% out of pocket and covers the remaining 50% with a mortgage upon receiving the keys.
It’s important to understand that banks issue mortgages only after their own property valuation and subtract the down payment amount from the loan amount. For example, if the property's value is 1.1 million AED and the bank values it at 1 million AED, the mortgage will be issued only for 1 million AED minus the down payment amount.
Additionally, the mortgage can include the 4% DLD tax and the agency commission costs.
For example, if the payment plan is 50% during construction and 50% upon completion, the buyer pays the initial 50% out of pocket and covers the remaining 50% with a mortgage upon receiving the keys.
- Interest rate: from 3.99% for residents, from 5% for non-residents;
- Down payment: from 20% for residents, from 50% for non-residents.
It’s important to understand that banks issue mortgages only after their own property valuation and subtract the down payment amount from the loan amount. For example, if the property's value is 1.1 million AED and the bank values it at 1 million AED, the mortgage will be issued only for 1 million AED minus the down payment amount.
Additionally, the mortgage can include the 4% DLD tax and the agency commission costs.
Mortgage conditions:
Step 1: Obtain preliminary approval from the bank for the mortgage.
Step 2: Select the property, sign the contract to complete the transaction, and make the deposit.
Step 3: Property valuation by the bank.
Step 4: Final approval of all documents by the bank.
Step 5: The bank issues a manager's cheque and sends it to the Trustee Office.
Step 6: The buyer and seller visit the Trustee Office to register the transaction.
Step 2: Select the property, sign the contract to complete the transaction, and make the deposit.
Step 3: Property valuation by the bank.
Step 4: Final approval of all documents by the bank.
Step 5: The bank issues a manager's cheque and sends it to the Trustee Office.
Step 6: The buyer and seller visit the Trustee Office to register the transaction.
Example of a property with mortgage
A 1-bedroom apartment in Madina Jumeirah Living. This is a luxurious premium residential complex set to complete in 2023. It is the only freehold community near the iconic Burj Al Arab hotel.
Property price is 2,300,000 AED. If you take out a mortgage for this apartment over 25 years with an interest rate of 4.2%, the down payment would be just 682,638 AED.
“This is an ideal option for investment with rental income. With a mortgage, you could essentially be purchasing the apartment for just 20% of its value. The monthly bank payment would be around 10,000 AED, while the apartment can be rented out for 20,000 AED per month,” explained Olga Strakhova.
In this case, the ROI on invested funds in the first year would be over 20%, in the second year nearly 18%, and in the third year and beyond, around 15%.
“This is the main advantage of a mortgage — ideal conditions for investors,” noted Olga Strakhova.
Another advantage of a mortgage is that you can purchase any property on the secondary market, reducing the risk of investing in an unpromising project. But what if you cannot secure a mortgage, and both installment plans and assignments seem unreliable due to the unfinished status of the properties?
“To ensure maximum security for our clients, we only work with developers who have a proven track record in the market, such as Emaar, Select Group, Meraas, and smaller developers with a substantial number of high-quality projects. This way, we can be confident that the building will be completed on time and in the condition promised in the project,” said Vyacheslav Kuznetsov, Sales Director at Colife Invest and Colife Dubai.
It is also crucial to evaluate the neighborhood. If the building is located in an area that is still under development, you need to assess its potential first.
In Dubai, this is not difficult because official plans are publicly available. On the city government’s website, you can find out what is planned for the new area: whether there will be a metro, how many hospitals, schools, and nurseries are planned, etc. These plans are outlined for 10-12 years ahead.
“If the area is starting development and you see that the infrastructure will be in place only in 10 or more years, while the apartment is expected to be rented out in a year, it’s better to avoid such projects. Renting out apartments in such developments will, at best, generate very modest returns,” noted the Sales Director at Colife Invest and Colife Dubai.
To ensure that a property starts generating income in the near future, it is important to choose projects with infrastructure that will be established by the time the building is completed. Apartments in such developments can be rented out immediately upon completion at market rates.
Property price is 2,300,000 AED. If you take out a mortgage for this apartment over 25 years with an interest rate of 4.2%, the down payment would be just 682,638 AED.
“This is an ideal option for investment with rental income. With a mortgage, you could essentially be purchasing the apartment for just 20% of its value. The monthly bank payment would be around 10,000 AED, while the apartment can be rented out for 20,000 AED per month,” explained Olga Strakhova.
In this case, the ROI on invested funds in the first year would be over 20%, in the second year nearly 18%, and in the third year and beyond, around 15%.
“This is the main advantage of a mortgage — ideal conditions for investors,” noted Olga Strakhova.
Another advantage of a mortgage is that you can purchase any property on the secondary market, reducing the risk of investing in an unpromising project. But what if you cannot secure a mortgage, and both installment plans and assignments seem unreliable due to the unfinished status of the properties?
“To ensure maximum security for our clients, we only work with developers who have a proven track record in the market, such as Emaar, Select Group, Meraas, and smaller developers with a substantial number of high-quality projects. This way, we can be confident that the building will be completed on time and in the condition promised in the project,” said Vyacheslav Kuznetsov, Sales Director at Colife Invest and Colife Dubai.
It is also crucial to evaluate the neighborhood. If the building is located in an area that is still under development, you need to assess its potential first.
In Dubai, this is not difficult because official plans are publicly available. On the city government’s website, you can find out what is planned for the new area: whether there will be a metro, how many hospitals, schools, and nurseries are planned, etc. These plans are outlined for 10-12 years ahead.
“If the area is starting development and you see that the infrastructure will be in place only in 10 or more years, while the apartment is expected to be rented out in a year, it’s better to avoid such projects. Renting out apartments in such developments will, at best, generate very modest returns,” noted the Sales Director at Colife Invest and Colife Dubai.
To ensure that a property starts generating income in the near future, it is important to choose projects with infrastructure that will be established by the time the building is completed. Apartments in such developments can be rented out immediately upon completion at market rates.
Conclusion
All in all, choosing the right property investment in Dubai requires understanding various purchase options, from mortgages to installments and assignments. While mortgages offer the benefit of acquiring secondary market properties with potentially high ROI, careful consideration of the developer's reputation and the neighborhood's future infrastructure is crucial when applying for installment and assignment. By working with reputable developers and selecting projects in well-planned areas, investors can maximize their returns and minimize risks.
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