Is mortgage affordable for an expat in Dubai?
Percentage of property transactions through mortgage increased
Dubai property guide
While cash-based purchases are predominant in Dubai, mortgages are on the rise and comprise a fairly sizable portion of recent property investments. According to the Central Bank of UAE, mortgages made 15% of property investments in 2018 in comparison to 12,5% in 2017 (for properties under AED 10 million).
To prove or to deny an assertion let’s check what’s the situation with prices on rentals in Dubai.
Let’s have a look at the family neighbourhood Jumeirah Village Circle with its soft rental prices and comfortable environment for people who want to live there and not just view see sights. First of all, it’s not a touristic area and offers a wide range of apartments almost for each wallet. Of course, there are some constructions being done right now, but it means this is an area with a high potential when it’s fully developed.
We have analyzed more than 3 thousands apartment offers for rent in JVC. The most rental offers in JVC area suppose that you will rent a property for a year (normally not less), and in this case you will have the most attractive prices. So, if we compare rental price per month and per year, we’ll see that the average price for a studio apartment makes $1,270 (if you rent it for a month), but if you check offers with yearly payments it will make $857. And since it's an average value, you will be able to find even more attractive prices. Anyway that’s the key to save money – go for long term.
Find an apartment at a reasonable price in Dubai
And what about the apartment prices for sale?
The average price for smaller apartments in JVC can make $120K. You can even expect to find a bargain studio of $42K (37 square meters). Luxury properties with 3 bedrooms and multiple rooms are starting with $400K (~AED 1,5m). Many of the offers have such attractive prices due to the development stage they are at now with the constriction completion this year. Some of them even include next year purchase price (which is higher, because the construction will be over).
Thus if you rent an average 2 bedroom apartment for $1,200, how much will you pay after 10 years (if you plan to stay here)? It makes like $144,000 for 10 years. That’s the price for a 2 bedroom apartment (could also be the same as you pay for).
But what about the house prices? If you opt in for buying a ready villa in JVC you will pay at least $290K for a villa with living area of 151 sq meters.
So you have decided for buying property in JVC. There are 2 options of doing it - buying cash or borrowing money from the bank. With cash buying it's all clear apart from moving money from abroad. But it's worth trying to calculate your expenses when you borrow money from a local bank.
How to calculate monthly payments and overal expenses?
Let's imagine you’re a civil engineer in Dubai with an average salary of $8,200 (AED 30,000).
You selected an apartment with 2 rooms, its price is $156,000 (AED 650,000). One downside - it's still under construction, it will be completed in June 2020 (meaning the price will grow at that time). As an expat you you’re eligible to get a loan from the bank if your minimum salary is ~$2,700 (AED 10,000). So, you can get it with your salary of $8,200. If you already have a property abroad, it means you will purchase your second home, thus you will have to make a down payment - 40% of the property value ($62400, or AED 229,214).
But in our case the construction company offers another payment scheme:
- 5% when booking the unit $7,800 (AED 28,652)
- 30% during the construction period - 46,800 (AED 171,910) during the first year year = $3,900 (AED 14,326) per month
- 65% post-handover payments ($101,400 during 4 years which makes ~ $2,112 per month, AED 372,458 and AED 7,757 accordingly)
If you get a loan e.g. in Standard Chartered Home Finance (you could hire a mortgage broker to find the best suitable variant and repayment options), you will have the following payment structure:
- Loan amount – $93,600 (AED 390,000)
- Down payment – 40% - $62,400 (AED 260,000)
- Processing fee of the loan amount - 0.525% ($491.4 = AED 2,047.5)
- Life insurance per year (Takaful) - 0.046% (~$43 = AED 179.4)
- Monthly payments – $1,216.55 (AED 4,468.75)
- Repayment time – 10 years
- Total amount to pay – $145,986 (AED 536,250) More details can be checked at souqalmal website in order to compare mortgage offers from multiple banks. Additional payments like agent's commision (if you buy with help of agent) and property registration will also apply. Please check more details.
As you can see, if you have some savings that you want to invest in real estate, that might be a good chance to buy an apartment with monthly expenses comparable to the rentals. Of course, it's mostly related to people who want to live in Dubai for a long time or at least want to make some profit from owning an apartment in Dubai by renting it out. But one thing is sure - it's affordable and might be a perfect investment if you calculate all the expenses and be sure about possible pitfalls and risks.