Dubai: Coming to terms with a new market

Independent lenders have made it easier for the British to purchase property in the region, reports Graham Norwood
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The Independent Online

Thousands of Britons have quickly come to terms with buying and selling property in Dubai, despite the regulations being quite unlike those in the UK.

The biggest difference is the absence of what lawyers in this country call "true ownership" - in other words, you can own the property but not the land, all of which formally belongs to Dubai's ruling royal family.

Foreigners have been able to buy what has become known as "semi-freehold" in Dubai since 2002 in selected zones, which now constitute the significant majority of "new" Dubai. The introduction of full freehold ownership has been discussed for some time but has yet to be confirmed.

Therefore all sales are, in legal terms, merely contracts between the buyer and developer on new homes, or between the buyer and the seller on second-hand properties. However, as the three main Dubai developers (Nakheel, Emaar and Estithmaar) each have government appointees on their management boards, there is a high level of security that the semi-freehold status will remain stable.

Until 2002 most property sales in Dubai were to Kuwaitis, Saudi Arabians, Iranians and Indians, even though Britons working in the UAE's oil industry formed the largest national grouping. But since then, the picture has changed despite frequent international tensions in the Middle East.

"If other residents of the Middle East regard Dubai as a safe haven in a time of instability, Britons can safely regard it the same way too," says Mansour al-Othaimin of Emaar Properties, one of Dubai's largest developers.

Thousands have taken that advice. Since 2003 some 6,000 apartments and 2,000 villas have been built in Dubai. Most homes are in developments - the most famous is The Palm Jumeirah but there are scores of others - and the latest zone of new developments is Dubai Marina, called a "city within a city".

Those seeking apartments outside of developments focus on exclusive suburbs such as Jumeirah, Umm Sequim and Sata Parkland; British ex-pats are also buying in increasing numbers in Rashidiya, Al Quoz and Mirdif, which until now have been primarily Arab quarters. Cheaper homes are in Garhaud and Satwa.

Most developments built in the past two years tend to include high-specification "lifestyle" packages - gym membership, 24-hour concierge services, daily cleaning, and car parks, sometimes linked to nearby hotels. Interior specifications are also high.

Savills and Cluttons, two of Britain's leading estate agents at the mid to top of the market, have been dealing with Dubai property sales for over two years. Now some UK mortgage firms, initially wary of lending to ex-pats, have also started to relax.

This means that for the first time there is independent lending for buyers - until recently, Dubai developers themselves set up financial arms to lend to buyers, or alternatively Britons pulled out equity from their main homes to fund purchases.

HSBC has just started lending on completed new or second hand properties in 12 specific developments and some geographical parts of Dubai, with loan terms of up to 20 years for villas and townhouses and up to 15 years for apartments. "The loans are actually similar to those in the UK. We've taken into account the relative stability of Dubai's market and the smoothness of ownership despite the relative lack of regulation," says an HSBC spokeswoman.

Rival lender Standard Chartered will now provide funds on homes due for completion within three months of the loan being issued, and Lloyds TSB has specified three developments where it will lend to buyers.

However, while the sales process remains relatively unregulated there are more rules for landlords wanting to make their investments sweat in the Dubai heat.

As in the UK, the convention is that most Dubai properties are let unfurnished. Tenants have to pay for utilities and service charges if this has been made clear in the rental agreement. Again as in the UK, about 10 per cent to 20 per cent of rental income goes on agency fees to manage the property.

But there are rent controls. Landlords can only increase rent by up to 20 per cent over any three-year period. Although this sounds high by the standard of the stable UK rental market, it has kept spiralling rents in Dubai under some form of control, although there is speculation that this restriction on increases could be repealed.

It is hard to believe that Dubai's international property industry is only four years old. More changes are inevitable - but thousands of British owners would say the current system has served them well.


Work permits and residency visas are often supplied by firms employing overseas workers. Some Britons get 60-day temporary visas at Dubai airport and renew these each time they travel to or from the UK; with these visas it is possible to work but not open bank accounts or sign up for utilities when buying a home.

Developers issue residency visas with properties bought by foreigners but these do not entitle buyers to work in Dubai; a permanent work permit must be arranged through an employer.

Ten points to consider before making your move

There is no formal government property tax but buyers pay 1 per cent to 7 per cent legal and administrative transaction fees, plus 2 per cent to the seller's estate agent.

Most new developments require a 5 per cent to 15 per cent deposit and on second-hand properties non-refundable deposits of £3,000 to £150,000 must be paid depending on asking price.

Ask for the "original price" on second-hand properties, to judge how the market has risen.

Always check if the previous owner honoured payment schedules on new homes - sales cannot be legally completed until all payments and service charge debts have been made.

New properties usually have one year of free maintenance and a UK-style 10-year structural defect guarantee.

Freehold property does not exist in Dubai although in May 2002 Crown Prince General Sheikh Mohammed bin Rashid Al Maktoum pledged "freehold rights" to buyers.

Inheritance rights under UAE law state that local courts must apply the laws of the country of the deceased - there is no history of foreign-owned property being seized.

Landlords usually receive rent on post-dated cheques at four- or six-monthly intervals, for up to one year in advance.

In some circumstances an overseas owner who rents out his property may have to pay up to 5 per cent tax on rental income.

Off-shore companies can own property in some designated developments. Set-up costs are about £2,000 and annual renewal costs are usually about £500. Several lawyers' and accountants' practices in Dubai are registered to act as offshore agents for companies buying properties in this way.