The home buying process in Dubai depends greatly on the type of purchase. Dounia Fadi, CEO of MD Properties, provides a comprehensive guide to each buying scenario.
Dubai is a cosmopolitan city that has attracted people from all over the world. The government, as well as the establishment of regulatory bodies, has made the process of owning real estate safer – and increasingly more straightforward.
The most critical factor when buying a property is the real estate agent you choose. A good agent will guide you through the process end to end and handle any potential hiccups you may face.
However, the home buying process in Dubai depends greatly on the type of purchase. For example, a cash purchase versus a mortgage purchase, or ready versus off-plan property – and whether you are purchasing from an individual owner, company or developer. All these factors will dictate the timeframe and paperwork required.
Here is a look at the various scenarios in buying a secondary market ready property.
Cash Seller to Cash Buyer
The first step after selecting your property is to make an offer through your real estate agent. Once the offer is accepted, and after thoroughly checking the ownership documents, a security deposit cheque amounting to 10 percent of the agreed purchase price is issued. This amount must be made out to the name of the title deed holder, and no one else. The cheque is held by the real estate agency until the day of transfer where it is exchanged to a manager’s cheque made out to the seller and handed over upon completion of the buying process.
Once the 10 percent security deposit is issued the property is removed from the market while the real estate agent prepares the contract between the buyer and the seller, known as the Form F.
Once the contract is signed by all parties, a No Objection Certificate (NOC) is applied for by the seller – usually from the developer to ensure there are no outstanding service charges or issues with the property. The NOC process and fee may differ from one developer to another. The NOC must be in Arabic and should be addressed to the Dubai Land Department (DLD).
After obtaining the NOC, the buyer prepares the manager’s cheque for the seller, the DLD’s 4 percent transfer fee, the admin and title deed fee, and the agency fee, as well as the trustee’s fee in cash.
At this stage, the broker would have calculated the balance of the service charges that must be refunded back to the seller from the day of transfer on a pro-rata basis. In the case that the property is rented, the seller must refund the rent security deposit and the balance of the rent, also on a pro-rata basis, from the day of transfer back the buyer.
After the DLD issues the new title deed the seller must close his DEWA and chiller accounts and settle all outstanding bills and collect their deposit so the new owner can open his utility accounts. This can also be done before the transfer, it depends entirely on what the parties agree to on the contract. The cash to cash process time frame can take from a week to one month depending on the parties and the fund’s availability, but they usually take the shortest time.
Cash Seller to Mortgage B
Before starting to look for property, the buyer must apply for mortgage pre-approval. This is not essential but does offer peace of mind and allows the buyer to be aware of their budget and purchasing capacity.
In the UAE, in the case of a first-time buyer, banks will provide finance of up to 75 percent of the purchase price. Meaning the buyer must have a 25 percent deposit as well as associated fees to contribute to the purchase.
Once a bank pre-approval is obtained, the buyer can begin viewing properties to their budget and liking. Once an offer is accepted, a 10 percent deposit cheque is issued, and Form F is signed, the contract, as well as ownership documents, are submitted to the bank for review. A valuation is then requested and undertaken by a professional, independent company which may take a few days subject to availability of the valuer and access to the property.
Once the full valuation report is completed, it is submitted to the bank to confirm the contract price matches the current market value. This is an important step of the process, and it is also important to note that should the valuation fall short of the contract price, the bank will only lend based on the figure of the valuation – meaning the buyer is out of pocket for the shortfall.
Should the purchase price and valuation align, the bank will move forward with their internal processes of obtaining final approval for the loan, including requiring the buyer to undertake a health assessment for insurance purposes and sign the final mortgage agreement. This process is solely between the buyer and their chosen bank.
Once the final approval is issued, the seller or both parties – along with their real estate agent – will visit the developer’s office to apply for the NOC. Once obtained, the bank proceeds with the final steps of preparing the offer letter for the buyer in order to prepare the manager’s cheques in the name of the seller.
It is important to note that not all banks include the agency fee and transfer fee in their mortgage. Some banks will include up to 75 percent of the fees, but certainly not all do this. In the case that your chosen bank does not make a provision for fees, a managers cheque must be prepared for the shortfall.
Once all the cheques and the bank documents are ready, the bank books a date for the transfer at the trustee’s office and the property gets transferred to the new buyer’s name. If there are any service charges to be refunded to the seller they are calculated and refunded on the day of the transfer on a pro-rata basis; the same applies if the property is rented. The standard period for this whole process to be finished is 45 working days. If banks are prompt and the process could take less, but we always put 45 days just to be safe and to protect both buyer and seller.
Dubai Properties for Sale
Mortgage Seller to Cash Buyer
This process is a bit tedious because in most cases the seller does not have the funds to clear his own mortgage, hence the new buyer has to clear it on his behalf in order to be able to transfer the property. After the buyer selects the property, the offer is accepted, security deposit given and held, and form F is signed, the seller then applies for the liability letter from his bank to know the outstanding amount on his property.
Once the liability letter is issued the buyer will have to pay the outstanding amount to the seller‘s bank. To protect the buyer the DLD made a special procedure whereby prior to the buyer clearing the mortgage for the seller all parties must go to the trustee’s office with all the required paperwork to do the pre-registration (blocking) of the sale (reserving the property under the new buyer’s name). This means when the mortgage is cleared and the property is free of any liability the seller cannot sell it to anyone other than the registered buyer with the DLD.
Once this process is completed, the buyer may pay the seller’s bank the outstanding amount and clear the mortgage. Once the mortgage is cleared the seller’s bank issues a clearance letter and releases the original title deed of the property to the seller. After this process is the application of the NOC from the developer, followed by the second visit to the trustee’s office to complete the transfer process as mentioned in previous paragraphs. This process also takes around 45 working days.
Mortgage Seller to Mortgage Buyer
This scenario is often more complicated and lengthier. It involves the above processes from pre-approval, valuation, final approval, liability letter, clearance letter and so on – excluding the blocking part as the buyer’s bank will clear the outstanding mortgage on the property, hence they will only release the title deed to the buyer’s bank.
Having a long paper trail prevents the seller from selling the property to anyone else other than the buyer in question. This process takes around 60 working days, the clearance of the mortgage only happens once the buyer’s bank has granted the final approval – but again it could be less depending on the bank’s processes and promptness.
Buying an Off-plan Property from the Developer
When buying an off-plan property from a developer, it is always recommended to do this in conjunction with a reputable agent. Once a property is selected, a token must be paid to the developer; most developers grant a few days to pay the booking fee and Oqood fee.
Oqood registration is required for all off-plan properties. It’s a service provided to developers by the DLD which aims to simplify the registration of contracts between off-plan properties, developers and buyers. The developer prepares the sales and purchase agreement which needs to be signed by both the buyer and the developer. A payment plan will follow which details the necessary payments required until property completion and handover. Once the project is completed, the Oqood will convert to a title deed.
Irrespective of the type of purchase, it’s imperative to conduct proper due diligence as well as ensure all legal documents are in order.
Be it individual, company or developer, always ask for ownership and identification documents before signing any documents or issuing any money. The government of Dubai has developed apps where title deed and power of attorney validity can be verified.
Above all, deal with a registered real estate agent who can do most of the work for you and greatly reduce any hassle – whatever the process.
By Dounia Fadi
CEO of MD Properties
This article was originally published in Prestige magazine, Vol 38.