Do you want to invest in Dubai with zero risk by buying a property? If YES, here are 12 smart tips on how to buy property in Dubai without down payment.
Buying a property was a little easier before the global credit crisis in 2008, but after that, banks around the world tightened up on lending policies and reduced maximum Loan to Value (LTV) ratios, which now require buyers to put down larger deposits against new purchases.
For people who are desiring to come into the market for the first time and who may not be that buoyant, this may present a significant problem as they now need to put down a lot of cash upfront before they can own a house. In the UAE, the maximum Loan to Value for expats is 75%, providing it is a first mortgage and the property is valued under AED 5M.
For purchases higher than AED 5M, the LTV reduces to 65% and 60% for all subsequent purchases. Therefore, a first time buyer has to find 25% down payment plus an estimated 7% of the value of the property to cover all fees for the transaction. This is a very high percentage for one just coming in for the first time.
But the question now is, is there a way someone can buy a property in Dubai without putting down this exorbitant down payment? The answer is yes, there are ways to go around it and even businesses that offer you such incentive under some certain arrangements. In addition to that, there are ways you can access cash to make your down payment commitment. Here are a few ways that can be done.
12 Tips on How to Buy a Property in Dubai Without Down Payment
- Make use of your existing property
If you do not have the cash t make a down payment while buying a property in Dubai, one of the ways you can get that extra cash is by making use of a property you already own locally or internationally with little or no mortgage refinanced.
You can use it to release cash for you down payment. For instance, if you have a property in the US, which is tenanted, while you are working overseas, you can secure a USD or AED mortgage up to 75 per cent of the value of the property and repatriate the funds to the UAE to use as deposit.
An additional UAE mortgage can then be taken against the new purchase, which is then funded by both mortgages. This is usually acceptable, but it is subject to the buyer’s affordability. Before you do this though, make sure to check with your bank or mortgage consultant as you need to be mindful that some UAE banks and lenders will not accept equity released funds from an existing property as down payment.
2. Make use of existing investments or cash
Just like borrowing against an existing property, you can also borrow against an existing cash or investment if you want to fund a down payment for a property in Dubai. Many expats sign up to longer term regular savings plans to maximize their offshore, non-tax status.
These investment plans can be used to leverage against a down payment. Loan to Value ratios against investment portfolios will depend on the underlying assets. Lower risk investments such as bonds or fixed interest securities will have higher LTVs than portfolios of emerging market shares for example, due to the volatility of the assets.
Private banking arrangements is a strategy used by high net worth clientele to finance property. Many expats choose to maintain wealth offshore in financial services jurisdictions, such as Switzerland or the Channel Islands.
While interest rates remain low, it can be beneficial to borrow against a portfolio of stocks and shares or bonds, which offer the potential to outperform the cost of borrowing. For example, a conservative investment portfolio may offer modest returns of five to six per cent per annum, while borrowing costs are below two per cent.
- Assume an existing mortgage
Yet another way to release funds to pay your down payment is to assume an existing mortgage. Assuming an existing mortgage will involve taking on responsibilities for all outstanding payments without necessarily making a down payment.
This kind of deal is known as a “subject to” contract, and involves the buyer using the seller’s existing financing for the deal. The buyer will receive the title to the property in exchange for taking on the mortgage obligations.
You will need to research the existing loan to ensure that there is no due-on-sale clause, which would stop a new buyer from assuming the mortgage. Assuming a mortgage might be a possibility if the seller is unable to make the mortgage payments and wants to avoid foreclosure.
- Research lease-to-own options
A lease-to-own arrangement involves the buyer leasing the property from the seller for a set period of time, before then purchasing the property outright. The purchase price will be agreed as part of the initial negotiations, but you will not have to make a down payment when you move in. These deals enable the buyer to live in the house and build up their credit rating and savings before making the purchase.
A lease-option agreement is similar, but only includes an option to buy rather than an obligation. Be aware though that these deals often end up having a higher overall cost than a traditional mortgage, and are sometimes associated with predatory lending.
- Propose seller financing
Seller financing can sometimes be agreed if the seller owns the home outright (has no outstanding mortgage payments). This kind of deal involves the seller becoming the mortgage holder and the buyer becoming the title holder. The buyer makes mortgage payments to the seller, as they have been negotiated.
A seller might opt to do this if they have a number of properties. You may be able to negotiate a no-money down deal with the seller if they are looking to defer the tax due on a large down payment. The seller may make a better return on interest payments from you than from putting the money in the bank.
- Exchange properties
Exchanging properties is another way you can actually buy a property in Dubai without having to make down payment. If you and the seller are interested in exchanging properties you may be able to negotiate a deal with no down payment.
It can be rare to find a straight swap for property and you may have to include some cash if the value of the property you are leaving is below that of the property you are buying. A property exchange can be a way to defer certain taxes related to gains from the sale of property
- Use non-cash assets
You may be able to agree to a deal with the seller to use non-cash assets instead of making a down payment. This will depend entirely on the seller, but there are instances when such a deal could be agreed. You might agree to pass over your car, or some furniture, to cover the equivalent of a down payment.
For some people, a cash payment may not be the most valuable offer. If the value of the thing you are exchanging is high, it might work out as a better deal for the seller than putting the cash payment in a bank account with low interest rates. This is yet another way to address the issue of down payment, but you have to do a lot of research before you can find these kind of transactions.
- Use private financing
A common way to purchase a property with no money down is to use private financing. You may be able to borrow the money from a friend or family member, or you may be able to get a separate loan from a financial institution. If you can get a loan to cover the down payment, you can buy a property with no money down, but with more debt to pay off.
This can be a good option if you have a secure future income to pay off the debts. But you have to note that often the interest rates and repayment terms on the loan will end up more expensive than saving up and making a down payment.
- Refinance an existing property
If you already own property, look into refinancing the property. You might also be able to get an equity loan or line of credit on the property. These options are usually cheaper and easier to get than a new loan on a separate property. Talk to your current bank or mortgage lender to see what your options are.
- Negotiate a low down payment
With any property deal, the down payment is part of the negotiations. Your bargaining position will depend on your credit rating and your financial situation, but there is a chance that you will be able to negotiate a lower down payment if you can make a strong argument.
You could offer to pay a higher overall price for the property, but pay it only through mortgage payments. You might ask to pay the down payment in installments over the first year, or as a single payment, but a year into your mortgage.
- Personal Loans are accepted for paying property purchase fees/costs
Although personal loans are not allowed to be used as down payments, they can be used to pay the estimated seven per cent transaction or purchase costs. Personal loans can be used to pay the estimated 7% transaction or purchase costs.
In Dubai, the costs of buying a Freehold property are; 2% Real Estate Broker Fee, 4% DLD Transfer Fee, 0.25% Mortgage Registration Fee, AED 4,000 Registration Trustee Office and Bank fees, which vary from bank to bank. These can be financed via personal loan, providing the buyer is eligible and has the down payment from savings.
Several banks offer both the mortgage and personal loan for fees these days but insist on salary transfer. Again, some banks are averse to this and personal loans can be difficult to obtain, particularly if the applicant works for a small, unlisted company or is self-employed.
- Gifts received from parents or family members
When a person does not have the required sum to fund a down payment in Dubai, yet another way they can access these funds is leveraging gifts from family and friends. These can be used as down payments. However, banks will not accept loans (interest or interest free) from family. Most lenders will also ask for a letter from the family member and proof that the funds are not from a personal loan.