Hidden Charges and Fees While Buying a Property in Dubai

Everyone desires to own a place, and this dream is ubiquitous among expats. In the past, expats in Dubai were given only restricted choices. For instance, they were only allowed to rent residential units. However, after the Government of Dubai introduced designated free whole properties, owning property in Dubai has become easy and accessible for many foreigners.

Traditionally, Dubai offered high property prices, due to which investment or purchase in the city was rare. Following the establishment of mid-market residential options that are comparatively affordable and follow a consistent cost-declining trend to make the property market more accessible and reachable. Therefore, it has become feasible to purchase any property with higher ROIs compared to the rental market of Dubai. In several cases, the monthly mortgage paybacks have also been reduced, contrary to the monthly rents. Also, the property values have increased with the additional benefits of capital gains.

Navigating the accurate information of the actual prices relevant to the home purchase is more than just knowing about monthly loan payments. This knowledge is crucial for buyers to make informed decisions that result in capital gains and financial appreciation. Different departments of the Dubai government (such as real estate developers or agents, Dubai Land Department (DLD), conveyancers, and mortgage lenders) have many charges.
Some of these supplementary charges are articulated below;

Cost of Property Purchase in Dubai

It is essential to make an adequate budget beyond the listed price of the property to stay ahead of the time. Budgeting helps you make adequate financial arrangements whether you seek to buy a staggering waterfront villa or a modest downtown apartment. Don't fret! Because we have broken down the cost induced on all the properties sold in Dubai to make the most out of your investment.

This article will assist you in navigating the intricacies of the property market. This guide ensures that your property purchase is transparent and smoother whether you are interested in buying apartments in Dubai or a townhouse.

The overall cost of purchasing property in Dubai varies between 7% and 10% of the property value. However, it involves various kinds of costs as well:

• Transfer Fee: government and administrative fees
• Agency Fee: agent and brokerage fees
• Initial deposit; initial purchase cost
• Mortgage Charges; associated bank cost
• Developer Fee: charges for specific amenities or services
• Insurance Charges: property insurance cost
• Dubai Electricity and Water Authority (DEWA) Charges
• Service Fee: annual service charges

Transfer Fees

All types of properties purchased in the city of Dubai are subject to fees from the Dubai Land Department (DLD). Moreover, every real estate purchase requires registration with the DLD. The transaction must be registered within 60 days, and if it is not registered, the purchase is nullified.

The Dubai Land Department's fees range up to 4% of the overall property price. Furthermore, properties purchased via a bank loan incur a 0.25% payment of the total loan amount. These specified fees are paid to the DLD. However, the property purchased in cash is free of these fees.

• Dubai Land Department Fees - 4% of the overall property price.
• Property Registration Fee- AED 4000 with 5% VAT for real estate that values more than AED 500,000.
• Property Registration Fees- AED 2000 and 5% VAT for real estate valued less than AED 500,000.
• For real estate purchased on a mortgage,0.25% of the overall loan value is charged to the admin, along with an AED 290 fee.

Agency Fee

Another hidden cost of purchasing and owning the property in Dubai is the Commission paid to the agent. Whether you are seeking a rental apartment or intend to buy a residential place in the United Arab Emirates, real estate agents can help ease the overall process. Hiring a real estate agent comes with potential benefits, although not free benefits and services.

The property agents' or brokers' fees typically range up to 2% of the total property value. However, the fees might differ according to the type of property and the region where the property stands. Some pinpoints regarding real estate agent fees include;

• Conveyance charges are applied, which vary between AED 6000 and AED 10,000. It is important to note that the fee will not be imposed if you don't hire a conveyancer during the deal finalization.
• In case of off-plan selling, the seller or developer is required to pay a commission to the real estate agent or brokerage.
• Hire a real estate agent to streamline multiple tasks, however, on certain negotiated commissions.

Initial Deposit

Due to Dubai's diverse and dynamic property market, the deposit is a prerequisite to secure the purchase. The buyer pays this initial deposit to the seller by cheque. However, the deposit will be held by RERA's authorized agent until the property is successfully transferred. The basic elements of an initial Deposit include;

• 10% charges are incurred by the Government of Dubai for ready-to-use properties as initial deposits in the secondary market.
• Additional fee is required for No Objection Certificate acquisition in case the buyer is purchasing a property on a mortgage. This factor is essential to officially transfer the property to buyer’s name.

Mortgage Charges

It is crucial to undertake the supplementary charges associated with the property purchase on a mortgage. Various types of mortgages in Dubai include some supplementary charges.

In case the property is held by the current owner on a mortgage, the buyer is required to pay out the existing mortgage amount. Once the current mortgage payment is completed, the buyer will obtain the Non-Objection Certificate (NOC). Acquisition of NOC is mandatory to register the property with the Dubai Land Department. The following figures showcase the mortgage charges;

• A mortgage will be arranged when 1% of the loan amount and 5% VAT are paid to the bank.
• Property Valuation Fee estimated to be around AED 2500- AED 3500 and 5% VAT charges.

Developer Fees

In rare cases, developers may also incur supplementary charges known as developer fees for specific amenities or services offered within the development. For instance, Grovy Real Estate Developers is a huge name that produces upscale developments like Aura, Alcove, and Aria.
Hidden costs of developer charges are required to be paid on the purchase of the property because;

• Developer Fees are incurred mainly on luxurious developments for the provision of high-end amenities.
• Premium accessibility to exclusive facilities like concierge services, maintenance requests, and other benefits requires supplementary developer fees.

Insurance Charges

Residential insurance in Dubai is not mandatory but is preferred to secure potential protection from loss or damage caused by natural disasters, accidental fires, or theft.

However, the government of UAE has made insurance compulsory in case of buying a property on a mortgage. The premium payments paid for insurance are hidden costs of mortgage home ownership. Therefore, it is essential to add them to your budget.

Banks typically take annual charges on the declining balance of a mortgage that varies between 0.4% and 0.8%. In some cases, banks require yearly payment of the life insurance policy. Most banks have personal in-house life insurance policies, which prominent international insurance companies approve. However, an external life insurance policy is comparatively reasonable and economical, particularly if the insurance seeker is young and healthy. You may also find alternative options that differ according to the circumstances, the type of bank, or the mortgage lender.

Bear in mind several key points while buying a property in Dubai;

• Offers protection or peace of mind to property owners.
• Most banks demand a monthly life insurance payment along with the loan amount.
• A little high cost of the bank’s in-house life insurance policies.

Dubai Electricity and Water Authority Registration Charges

Dubai Electricity and Water Authority (DEWA) provides utility services to Dubai residents. Residents have incurred meter installation charges that typically vary between AED 2300 and AED 4,000.

• Essential for property maintenance.
• Offers property functionality.
• The number of meters installed may cause the fee cost to change slightly.

Service Fees

The annual service charges introduced by the maintenance index of RERA are overpriced, specifically for property owners in the United Arab Emirates. Considering these hidden costs may prepare you for a practical budget and a more flexible purchasing process. The property market of the UAE has always given overwhelming response to both the sellers and the renters, whether it is a villa, townhouse, or an apartment. Property owners in Dubai have to pay service charges per annum. These charges are utilized because of the following reasons;

• To expand the community
• To help sustain the financial stability of the property industry

Fees Paid by the Seller

1. Sales Continuance: It is provided to the agent and costs around AED 4000 in case the seller is financed and AED 2500 if the seller is dealing in cash.
2. Mortgage Discharge Fee: The seller pays the Dubai Land Department for this. The mortgage discharge fee costs around AED 1560 in the case of an Islamic bank and AED 1290 if the bank is commercial.
3. Property Blocking Fee: Again, this amount is provided to DLD and ranges up to AED 1520. This fee is applied to deal finance seller to finance buyer transactions.
4. Trustee Fee: AED 300 Is paid to block the property and release the seller from the mortgage.

Important Considerations Regarding Buying a Property in Dubai

• Extensive Range of Costs: Buying a property in Dubai is surely a rewarding process; however, it includes several fees, such as administrative and government charges, agent charges, and mortgage-associated costs.

• Substantial Government Fees: If you are ready to buy a property in Dubai, be aware of the registration fees, the charges provided to the Dubai Land Department, and also the mortgage registration fees.

• Required Fees to the Agents and Brokers: Recruiting a property agent or conveyancer is optional But advantageous. However, the total expense that adds to your budget due to hiring an agent should not be neglected.

• Recurred Maintenance and Additional Charges: Buying a property in Dubai also comes with annual service charges, maintenance expenses, and fees paid to the Dubai Electricity and Water Authority (DEWA).
• Insurance Guarantees Security: Home insurance is not necessary, but it is preferred to secure potential protection and avoid any financial harm due to accidental events.
• Essentiality of Initial Deposits: The initial Deposit is mandatory to secure the property, particularly in the case of secondary market dealings.
• Detailed Budget Planning is Crucial: Acquiring sufficient knowledge on proper budgeting while including additional and hidden costs related to the property purchase will make the transaction process smoother and more efficient.

Market-Specific Takeaways

There are stipulated market-specific conditions essential for a property buyer in Dubai to undertake;

Freehold vs. Leasehold

One of the most crucial market-specific considerations is to check whether the property is leasehold or freehold. In Dubai, leasehold properties are owned by a private developer or the government and rented to the buyer for a specified time frame. On the other hand, Freehold properties are directly owned by the buyer with full ownership rights.

Location and Property Value

Undertaking the property value and location is another important market-specific consideration. Dubai features numerous residential communities with exceptional prices and amenities. Therefore, buyers are required to thoroughly consider the property value and location properly.

Conclusion

There are various hidden and additional expenses associated with buying a property in Dubai. Therefore, proper budget planning is key to ensuring that all your costs are covered ahead of time. Once you are aware of the hidden costs of purchasing a property in Dubai, you might carry on with your financial selection. Dubai Housing is a renowned institution providing many screened homes to generate potential income from purchases. Their recommendations and counseling ensure an enhanced utilization of time while guaranteeing a worthwhile property portfolio in the magnificent city of Dubai.
In the ever-evolving property world of Dubai, one requires to arm with all-round knowledge in order to make a well-informed decision to excel in the vibrant property market. Also, the deep knowledge about the differences between leasehold and freehold properties will help one choose an ideal option for investment.