YOUR COMPLETE GUIDE TO BUYING & FINANCING PROPERTY IN ABU DHABI

Transcription

1 YOUR COMPLETE GUIDE TO BUYING & FINANCING PROPERTY IN ABU DHABI

2 Introduction Contents This Guidance* is correct as at 20 November For the latest version please Abu Dhabi Law 19 of 2005 did two things, firstly it allowed Emiratis to buy and sell land (they had not been allowed to do this before that date), and secondly it created the notion of Investment Areas in which property can be owned by non-uae Nationals. This Guide will seek to explain the process and pitfalls of non-uae nationals financing and buying in the UAE s capital. There are several other articles in this series (such as How to Choose an Investment Property ). guides@cpestateagents.com for copies of this and others in the series. We have tried to keep this guide chronological, from the initial steps through to the actual purchase, and when you should begin looking at finance through to what kind of mortgage you need to get all the way to the process by which the bank pays money to the seller. This Guide refers to completed units, for our Guide to Buying Off- Plan or Under Construction guides@cpestateagents.com. All legal references are to Abu Dhabi Law 19 of 2005, which has become known as just the Purchasing Law, unless otherwise stated. We have used the terms mortgage and finance interchangeably. If you have any questions on this Guide or would like to view property for sale in Abu Dhabi then please call us on 800 CPEA (2732) or Buying Property Who Can Buy What and Where 5 Residency and Visas 5 Inheritance and Wills 5 Ownership - 99 Year leases, Usufruct and Musataha 5 Overview of the Investment Areas 6 Starting Your Search What You Need 6 Bank Finance and Mortgages - What You Can Borrow 7 Fees and Payments 8 Finding the Right Broker 8 The Viewings 8 Tenanted Property - What You Need to Know 9 The Buying Process 10 The New Law 10 Financing Property When to Look for Finance 11 Where to Find Finance 11 Finance from Abroad 11 What You Need 12 Types of Finance 12 Barriers to Finance 12 How much Cash/Equity/Deposit do You Need 12 What You Will Need to Pay 13 Pre-Approval/Approval in Principal 13 Property Inspection 13 Pre-Existing Mortgage and the NOC 14 Transfer and Release of Funds 14 Timings 14 2 Your Complete Guide to Buying and Financing Property in Abu Dhabi

3 Buying Property 1. Who Can Buy What and Where No-one apart from UAE nationals (or companies wholly owned by them (not just 51%)) can own property outside Investment Areas. See Overview of Investment Areas below for where these are. In Investment Areas foreign (non-uae) nationals can buy apartments, villas or land. The type of ownership they get is discussed below under Ownership - 99 Year leases, Usufruct and Musataha and will depend on the nationality of the person and what type of asset is being purchased. Note: Contrary to popular belief GCC Nationals cannot buy outside Investment Areas. The only difference between GGC Nationals and other nationalities is that they can obtain freehold title in Investment Zones. The GCC is the Gulf Cooperation Council, which is comprised of Saudi Arabia, Kuwait, Bahrain, Qatar, Oman and the UAE. 2. Residency and Visas You do not have to be resident in the UAE to purchase property as a foreign national, but you may be more limited in your local mortgage options if you are living overseas (see Bank Financing and Mortgages below) and face issues connecting your utilities. Contrary to the claims of some developers no property purchase in Abu Dhabi can guarantee buyers a visa. 3. Inheritance and Wills It is possible to draft a Will which will operate under the laws of an expatriate s home country as opposed to the probate law of the UAE (which is Sharia law). For more information please request our Guide to Abu Dhabi Wills and Probate by ing guides@ cpestateagents.com. 4. Ownership - 99 Year leases, Usufruct and Musataha The only foreign nationals who can obtain freehold title to their property in Investment Areas are GCC Nationals (Article 3 of the Purchase Law). According to Article 4 of the Purchase Law non-gcc Nationals can only get one of two types of ownership: Usufruct This is the right to benefit from a property/building belonging to a third party provided that it remains in the same condition. This is the most common form of ownership of apartments and Article 4(1) of the Purchase Law states that this right lasts for 99 years. This is essentially a 99 year lease (which is exactly the same way people buy apartments in the UK for example). It does not allow the owner any right to the underlying land, only to their apartment. Musataha This allows a party the right to use and exploit (which includes development) land belonging to a third party. This is more commonly used when buying plots of land in Investment Areas. Article 4(1) of the Purchase Law states that this right lasts 50 years, renewable once by mutual consent (or as agreed contractually) for a further period of up to 50 years. Note: If you re buying an empty plot of land on Saadiyat make sure you talk to the developer about whether you re getting Musataha or Usufruct. Note: Some developers are advertising freehold rights but this can only mean freehold rights for GCC citizens. Freehold is absolute ownership of the land to do with as you please. 4 Your Complete Guide to Buying and Financing Property in Abu Dhabi Your Complete Guide to Buying and Financing Property in Abu Dhabi 5

4 5. Overview of the Investment Areas Below is a very basic guide to the Investment Areas: Saadiyat Island Linked by a bridge from the Corniche and on the other side to Yas Island, Saadiyat lies just off the coast of Downtown Abu Dhabi. The new cultural district is being built here and it will be the location of the Guggenheim, Louvre and New York University. The accommodation is mostly high end villas and low rise apartments based around the St Regis hotel and the Saadiyat Beach Golf course. This also contains the super luxury resort of Nurai Island where huge, stunning, sea facing villas are also for sale. Reem Island Located a few hundred meters off the coast of Downtown Abu Dhabi, Reem Island consists mostly of high-rise apartments with a few villas and townhouses. It is new, reasonably priced and bridges connect it right into the heart of the City. Reem Island Raha Beach Comprised of three main communities (with several more on the way at time of publishing), Al Bandar, Al Muneera and Al Zeina. Each community is set on the water facing Yas Island and the units are mostly mid-rise apartments with a few villas. It has great links to Yas Island, the Airport and is situated on the road to Dubai. Note: Raha Gardens is not an Investment Area. Yas Island Home to the Communities of Ansam (handover Q4 2017), West Yas (Handover 2018), Mayan (Handover 2019) and Yas Acres (Handover 2019) there is a lot going on here but everything is only able to be purchased off-plan at the moment. What is built are the facilities including Yas Waterworld, Ferrari World, the F1 track, Yas Mall, several Hotels, an Aldar School and the Warner Brother Theme Park (due 2017). Al Reef Set close to the International Airport Al Reef is a town all by itself. Around the periphery are a mixture of 2, 3, 4 and 5 bedroom villas and in the middle are mid-rise tower blocks with studio, 1, 2 and 3 bedroom apartments for sale. This is a more affordable option than Reem, Raha or Saadiyat. Hydra Village A little further out from al Reef is Hydra Village. Again a self-contained community this is made up of 2 and 3 bedroom villas. There are planned community facilities as well as shops and amenities. Al Ghadeer Located on the Dubai border close to the Jebel Ali Freezone and the new Maktoum International Airport. Like Hydra and Reef it is a self-contained community with 2 and 3 bed villas as well as studio, 1, 2 and 3 bed apartments. 6. Starting Your Search What You Need A Visa A discussion of your visa status has been had above in Residency and Visas. Bank Account It sounds obvious but if you re new in town make this a priority. Budget How much can you comfortably afford to spend? If you are a cash buyer this is easy (though you may want to consider leveraging your purchase, talk to us or guides@cpestateagents.com for our Guide to Leverage ). Pre-Approval - If you need a mortgage/financing make sure that, before you even start looking at property online, you know how much you can borrow, see Bank Finance and Mortgages below. A Lump Sum You will need at least 30% of the purchase price in cash for financing and other fees, see Bank Finance and Mortgages below. For an Investment Property - An Investment Strategy. Make sure you guides@cpestateagents.com for our Guide to Selecting an Investment Property, this covers everything you need to know to make a wise investment decision. It has advice on Income vs Capital Appreciation through to working out net rates of return and other hints and tips. To talk to one of our agents please dial or sales@cpestateagents.com. For a Home An idea of what you want. Once you have a budget really think about what you re looking for. Talk to one of our agents on or sales@cpestateagents.com for guidance. A two bed on Saadiyat will be as much as a three bed on Reem so getting your priorities straight in your head will save a lot of heartache later on. 6 Your Complete Guide to Buying and Financing Property in Abu Dhabi Your Complete Guide to Buying and Financing Property in Abu Dhabi 7

5 7. Bank Finance and Mortgages What You Can Borrow See the second half of this brochure for a detailed break-down. 8. Fees and Payments Registration Fee If you are buying your unit on the secondary market then it is likely you will have to pay 2% of the price you buy at (it may be 2% of the first purchase price) to register the property with the Municipality. This is not usually applicable when buying directly from the developer. Commission If you are buying through a broker or property manager then they will charge you 2% of the purchase price as commission. Make sure you have enough spare cash to cover this. This should never be more than 2% even if more than one broker is involved. Mortgage Arrangement Fee If you are using finance then you will have to pay an arrangement fee to the bank or mortgage broker. Find out how much this is. Mortgage Registration Fee Your mortgage is legally required to be registered, this should be undertaken by the developer, make sure you know how much it will cost. Deposit When you make an offer you will be asked to sign an MOU (see The Buying Process below) and put down a deposit, 10% of the total purchase price is usual and is dictated by the seller. This is held by the real estate broker and you will forfeit this if you pull out of the sale. The Purchase Price You will be required to pay the purchase price upon transfer day when you sign the SPA (see The Buying Process below). Other Fees There may be other fees to pay to the developer or your bank. Get a list of these in advance. Note: You will likely need a No Objection Certificate from the developer (NOC) stating that the seller has paid all of his fees to the developer and that they do not object to the transfer of the unit to you. This should be covered by the seller. 9. Finding the Right Broker The Internet Property sites like Dubizzle, Propertyfinder and JustProperty do have their uses, but they are littered with false, out of date and misleading adverts posted by property agents who do not fully understand the legal and regulatory framework in Abu Dhabi, often posted just to get you to call them. Take care. Recommendation As with anywhere in the world if you have a good agent representing you they will bend over backwards to help you. If you commit to and put your faith in a good broker then they will work tirelessly to find you the perfect place, including phoning all those dubious adverts on Dubizzle for you to see if they check out. Ask around, search chat sites, find someone good when you find one you like tell them you ll work through them just as long as they keep bringing you the units you want to see. Establish a trust that you re both working towards the same thing and you can make it work. Note: The broker fees you will pay should always only be 2% of the purchase price even if the broker you re using gets his unit from another agent. Unlike in the rest of the world, landlords in Abu Dhabi don t give brokers exclusivity. All brokers have access to all properties, so get a good broker. 10. The Viewings So now you have a budget, a deposit, a broker and an idea of what you re looking for. Now it s time to start looking. The State of the Unit - Landlords in Abu Dhabi point blank refuse to do maintenance/cleaning of an empty property, so you are likely to see a fair few dirty places on your travels. Property is usually sold as is. Tenanted Units As you would imagine lots of units for sale are tenanted. Abu Dhabi s predominant religion is Islam and so inviting strangers to look round units is not as easy or welcome as it might be in other places. It is also the case that some landlords don t want their tenants to know they are selling. Be prepared to have difficulty looking at your unit, you may have to settle looking at the same type/floorplan of the unit elsewhere in the building/development. 11. Tenanted Property What You Need to Know As mentioned above most properties for sale are tenanted, so: For an Investment Property Make sure you ve seen the tenancy agreement before you buy as it will bind you when you purchase the unit. guides@cpestateagents.com for our Guide to Selecting an Investment Property and for our Guide to the Legal Rights and Obligations of Landlords. For a Home - Make sure it is vacant or the tenant has been given legal notice to vacate if you buy a property you take over the lease and can t evict the tenant unless you have given them two months notice before the end of their tenancy agreement. WARNING: Be careful about brokers asking for deposits in their name or agency fees up front. 8 Your Complete Guide to Buying and Financing Property in Abu Dhabi Your Complete Guide to Buying and Financing Property in Abu Dhabi 9

6 12. The Buying Process This is a very brief overview of the buying process, consult your agent for a more in-depth view: Financing Property The Offer Once you find the home of your dreams you put in an offer. If that offer is accepted both you and the seller will sign an MOU Memorandum of Understanding. This is an agreement to enter into an SPA or Sale and Purchase Agreement. This is a slightly archaic process which has evolved to get round the issue that SPAs are often issued by developers. The Deposit When you sign the MOU (drafted by your agent) you and the seller both give over a deposit (usually 10% of the total purchase price). Make sure that the MOU states exactly what will and will not happen with the deposits (many MOUs are silent on when you or the seller would forfeit their deposit). Usually if you sign the MOU and then pull out of the deal (or delay) you will lose your deposit. Note - Be sure you can commit to the transfer date and final payment before you sign (e.g if your purchase is dependent on you selling a property you need this in the MOU). Warning Most brokers use very poor MOU templates, make sure you read it and that, at a minimum, it states what will happen to the deposit (i.e. when it will be forfeited). Crompton Partners has an inhouse lawyer who drafts their MOUs. The Finance If the buyer is using finance then their bank will value the property. If they find it is worth what they have agreed to lend then they will begin to process the payments. Finance deals take longer than cash deals and banks may take up to 30 days to advance the money. If the seller has a mortgage this process can take 60 days in total. guides@cpestateagents.com for our Guide to Property Financing. The Transfer Once the money is ready the seller gets an NOC No Objection Certificate from the developer stating that the seller has paid all of his fees and the developer has no objection to the transfer. The Parties attend the signing (the banks may also be present) of the SPA and the money is handed over if there is no finance. At this stage if finance is being used the bank will only give a Comfort Letter stating they will pay once the developer has signed the SPA. The developer will take a few days to sign the SPA after which the buyer is registered as the new owner. The Seller or developer takes their copy of the SPA and the Comfort Letter to the bank to release the balance of the funds. 13. The New Law Law Number 3. Of 2015 will change the way sales are conducted in several ways. It is worth noting that although the law is effective as of 1 January 2016 much of it, at the time of writing, has not been implemented. The main change will be the fact that it will create title deeds for property and a central registry managed by the Department of Municipal Affairs (DMA). This means that once implemented the SPA will no-longer be proof of title and all transfers will occur in the DMA. Ask us about other changes that are coming into effect. 1. When to Look for Finance As mentioned above you should really be looking at finding finance as soon as you begin to think seriously about purchasing property. Working out how much you can borrow dictates your budget (and it is usually less than you think). Don t set your heart on the five bed seaview on Saadiyat and find out you can only afford a wall-view studio in Al Ghadeer, life is tough enough. Find out your budget first so you can start looking at property you can afford. Once your bank has agreed to lend you a certain amount this is called Pre-Approval or Approval in Principle and is dependent on certain other factors (see below). This is usually valid for a set period so watch out for the expiration date. Warning - Hasty buyers who fail to arrange mortgage approval in advance may find themselves paying a deposit for a property then racing against the clock to get the necessary funds before the completion date on the contract expires. Failure to meet the deadline can result in the loss of both your deposit and the property itself. 2. Where to Find Finance As with the rest of the world finance/mortgages are provided by banks, and you re not short of banks to choose from in the UAE. Approach your own bank or an independent mortgage advisor to discover exactly what you can borrow. We can recommend an independent broker for you, just ask. You should make sure you chose one of the larger banks and check to see that your bank lends on the majority of properties in Investment Areas. Each tower or development has a list of banks who have approved those units for lending. Some smaller banks may have not have approved particular buildings so it is well worth finding out what property your bank will lend on. If you don t you may have to go through the whole approval process again with another bank if the unit you have chosen isn t approved by your financial institution. 3. Finance from Abroad Finance can be arranged through overseas lenders if you have assets overseas. Many investors with assets overseas (property, income, investments) have taken advantage of favorable international interest rates. For example, someone with property in the UK may be able to release equity on assets in the UK to finance all or part of their property purchase in Abu Dhabi. 10 Your Complete Guide to Buying and Financing Property in Abu Dhabi Your Complete Guide to Buying and Financing Property in Abu Dhabi 11

7 4. What You Need 6. Barriers to Finance To secure approval you will have to provide banks with a list of paperwork, which generally includes: Salary letter from your employer; Any salary slips you receive; Six months of bank statements; Passport copy with both a photo and visa page; Copy of your Emirates ID; Copy of current credit card statements; For some lenders, proof of address; and Salary transfer to that bank (though not always). As you can see six months bank statements might stop a person who is new to the UAE from getting a mortgage, but some banks can be relaxed on this, especially government employees and employees of companies such as Etihad and Mubadala. 5. Types of Finance Banks in the UAE offer a variety of finance such as shariacompliant mortgage alternatives, also known as Islamic mortgages. Most are set up on a Ijara basis which is a buy and lease back arrangement. Some projects only accept islamic finance, you don t have to be muslim to take one of these mortgages. It is well worth noting that: 1) the bank takes into account your salary and other forms of debt you have (it may be worth cancelling your credit cards to get a more favorable rate and amount); 2) the central bank also specifies that the debt burden ratio (calculated in total monthly instalments of all debt burden) should not exceed 50% of the monthly income, but banks judging your debt to income ratio are usually looking for about 35%; and 3) the maximum limit for a mortgage loan is set at 25 years and the maximum age for the borrower at the time of last instalment is set at 65 years for expatriates, 70 if you are self-employed. 7. How much Cash/Equity/Deposit Do You Need The UAE Central Bank states that for expatriates: 1) For purchases under AED 5 million you will need to put up equity (cash) of at least 25% of the purchase price; 2) For purchases over AED 5 million you will need to put up equity of at least 35% of the purchase price; and 3) If the purchase is your second purchase in the UAE you will need to up equity of at least 40% of the purchase price. Banks will not allow you to borrow money to finance this equity amount. Note: To cover fees, registration and other matters you will need to add 5% of the purchase price to the above as well, so leave yourself some headroom on your budget. guides@ cpestateagents.com for our Guide to Buying Property in Abu Dhabi and a list of what fees are involved in purchasing property in the Capital. 8. What You Will Need to Pay What fees are involved with the mortgage process: 1) Mortgage application fee; 2) Mortgage processing fee; 3) Property valuation fee; 4) Mortgage registration fee; 5) You will need building s insurance; and 6) You will also need life insurance. Note: Arranging life insurance will take 2/3 weeks. Don t take it out with your mortgage provider, shop around as it can be 20/30 percent cheaper elsewhere. Building s insurance however is often the same price with the mortgage lender as elsewhere. Note: Something people often miss when taking out a mortgage are the early repayment fees. Banks in the UAE may charge you early repayment fees even if you sell the property so make sure you know what they are. 9. Pre-Approval/Approval in Principal The mortgage pre-approval should take between five and seven days for salaried borrowers, for those who are self-employed, it is longer. You should note that mortgage approval is unpredictable and can take longer than expected. If all goes well your lender will give you Pre-Approval or Approval in Principal (the same thing). This will tell you how much the bank will lend you - so you finally have a budget, however, this approval is dependent on the bank inspecting your potential purchase (see Property Inspection below). 10. Property Inspection Once you have found the home of your dreams or an amazing investment property let your bank know. The bank will then send an independent valuer round to the property to check that it is worth what you re paying for it. They do this to avoid fraud as in the past people have paid millions for studios and then defaulted on the debt whilst splitting the inflated purchase price with the seller. If the bank agrees with the valuation of the property they will issue a Formal Loan Offer. 12 Your Complete Guide to Buying and Financing Property in Abu Dhabi Your Complete Guide to Buying and Financing Property in Abu Dhabi 13

8 11. Pre-Existing Mortgage and the NOC If there is a pre-existing mortgage on the property, your bank will ask the seller to produce a Liability Letter setting out what is still owed on the property. Once your bank has received this your bank will pay off the mortgage and the seller s bank will release the title deeds (when you have a mortgage your bank will hold your title deed or SPA). Only when the mortgage is paid off can the seller get his No Objection Certificate (NOC) from the bank addressed to the developer. He gets this from the developer to state that he has paid off all his community fees, there is no mortgage registered against his unit and that the developer has no objection to him selling the property. 12. Transfer and Release of Funds Armed with your Formal Loan Offer and NOC you can now proceed to transfer. Sometimes your bank will attend but more likely they will not. Everyone named as an owner of the property and all purchasers must attend or send someone with power of attorney. The buyer s bank will issue a Comfort Letter which states to the seller that they will advance them the funds once the Sale and Purchase Agreement (SPA) has been signed by the developer. guides@ cpestateagents.com for our Guide to Buying Property in Abu Dhabi and more about this process. At transfer only the cash portion provided by the buyer will be given to the seller. This will often need to be in the form of Manager s Cheques (also known as a banker s draft). The developer will usually take 2-3 days to sign the SPA after the buyer and seller have signed it. The seller then takes his fully signed copy of the SPA and Comfort Letter into the bank for his final cheque for the balance of the purchase price. 13. Timings Cash to cash deals (i.e. no finance with the purchaser or seller) will usually take about two weeks from the signing of the MOU to transfer. If one party has finance this can be 30 days and if both parties have finance this can be up to 60 days. Plan ahead. 14 Your Complete Guide to Buying and Financing Property in Abu Dhabi Your Complete Guide to Buying and Financing Property in Abu Dhabi 15