How to Buy Property in Dubai

you decide whether Dubai is the right location for your second home or investment property

STEPS:

1.Consider the reasons for buying property in Dubai.

Dubai is rapidly growing in popularity with British second home purchasers attracted by its lifestyle, cosmopolitan atmosphere and sub-tropical climate.

In recent years, prices have increased by as much as 25 per cent per annum, while remaining low by UK standards, and Dubai City has become an international property hotspot. The consequent surge in new residential developments has fuelled fears of a property bubble, but demand is still exceeding supply and is not expected to slow in the short term.

2.Learn about Dubai City

Dubai City consists of two main areas, Bur Dubai (the older part) and Deira, which faces it across Dubai Creek and is now the centre of the city. Residential locations traditionally favoured by Westerners include the extremely select Jumeirah, which lies on the coast to the southwest of the city centre, and Al- Garhoud, situated on the northeastern side of the creek, near the airport. However, the recent property boom has led to a ripple effect that is enlarging the popular areas.

Most residential development is currently happening west of the city, with the majority of foreign and expatriate purchasers concentrated in an area of approximately 25 kms, within easy reach of the beaches and the city-centre facilities.

3.Choose a home.

The types of home favoured by British purchasers are apartments and villas (either single- or two-storey), often located in secure complexes with communal leisure facilities such as tennis courts, swimming pools and gyms.

Since 2002, when foreign nationals first became eligible to own property, Dubai has enjoyed a construction boom. New developments, many of them extremely luxurious and featuring the latest in technology, are springing up, particularly in areas popular with expatriates. These include Palm Island, a vast new resort development constructed in the shape of a palm, which projects 5 km into the sea off Jumeirah and extends Dubai's coastline by 61 km. The build problems common in earlier developments now seem largely to have been resolved.

4.Buy a home in Dubai.

It is important to understand the purchase procedure and property ownership rules. Until 2002, ownership of property in Dubai was restricted by law to citizens of the UAE and other nationals of the Arab Gulf Cooperation Council. Even when this law was reversed, there was, until recently, no federal law that recognised freehold tenure, which meant that the value of Dubai freeholds rested in essence on the country's international trading credentials and good name rather than on enforceable law. Foreigners who bought property in Dubai received a deed from the major development companies, which are, effectively, owned and controlled by Dubai's government and, ultimately, its ruler. Although this state of affairs had little or no significant effect on the burgeoning property market, it was not entirely satisfactory.

In March 2006, the Dubai government passed a long-awaited law allowing foreign freehold ownership of property in the emirate, but only in areas designated by the ruler. Owners are permitted to derive benefit from and to let their properties. It is generally understood that the freehold as set out under this law is a freehold in the international sense, whereby owners are deemed to have absolute rights in their property.

5.Be aware that some developers are still selling leasehold rather than freehold titles, in which case the title is valid for the period stipulated in the lease agreement.

6.Understand the property purchase process.

Because the international property market in Dubai is still in its infancy, there is as yet no formal purchase process. The only piece of paperwork required is a (usually) straightforward sales agreement. Before signing, it is advisable to consult a local lawyer or one familiar with Dubai, since, once signed, the document becomes legally binding.

In the majority of cases, those buying freehold property in Dubai do not incur survey fees. Stamp Duty does not exist. The only significant cost, therefore, is a 1.5 per cent land registry fee, payable on completion. Because of the absence of a structured purchase process, it is essential to tread warily and deal only with reputable developers and or agents.

7.Finance your purchase

When working out how to finance your purchase, consider all the options. Paying cash, if you can afford to, is often recommended, but you may not want to tie up a relatively large sum in this way.

The other options are remortgaging your UK home or arranging a mortgage on your Dubai property through a local or UK lender. Remortgaging offers the easiest solution. Releasing equity in a UK home means that the second home can be purchased for cash, without the need for another mortgage. However, this may only be feasible for those who own their first home outright.

Several UK mortgage providers will lend funds of up to 80 per cent of the purchase price for second home purchase over, typically, a 15-year term.

8.Get a mortgage in Dubai.

Mortgages can be difficult to obtain in Dubai. Non-status/self-certification mortgages are not available and the amount of red tape and paperwork involved can be off-putting to those accustomed to the less rigorous UK system.

Dubai lenders do not take into consideration any projected rental income from the property. The amount that can be borrowed is based on net (not gross) income. Mortgage repayments, combined with any other monthly expenses, must not exceed 35 per cent of net monthly income.

As exchange control is a complex subject, it is advisable to obtain appropriate professional advice before deciding to take out a mortgage in a foreign currency.

9.Be aware of the rules about taxation in Dubai

Dubai's massive oil revenues make it unnecessary for the government to raise income through direct taxation. As a result, taxes are almost non-existent, and Dubai is categorised a 'no tax' emirate. There are no withholding or capital taxes. Accordingly, Dubai does not levy tax on income, including that derived from letting property owned there, nor does it charge Capital Gains Tax. Goods are purchased free of tax, which is part of the city's attraction for shoppers from all over the world.

There are no property taxes in Dubai at present. In recent years, there has been talk of introducing sales, property and other taxes, but this appears unlikely to happen for the foreseeable future.

Personal taxation: non-residents - As part of their worldwide income, British citizens who own a second or holiday home in Dubai are taxed by the Inland Revenue on any income derived from letting it. They may also be liable for other taxes, such as Capital Gains Tax and Inheritance Tax.

To assess any potential implications for your personal tax liability, it is prudent to seek the advice of a qualified professional.

10.Understand money issues in Dubai.

Dubai's currency is the UAE dirham (AED). The current exchange rate is about 1 AED = £0.17 GBP, or $0.27 USD.

All major currencies are readily exchanged at banks and large hotels, but private moneychangers offer the best rates. They operate throughout Dubai, particularly in the more popular souks and shopping centres.

Major credit cards are widely accepted, as are travellers' cheques, which are best carried in US dollars or pounds sterling.

The numerous local and international banks offer all the usual banking services. Some also provide offshore banking. The Dubai government imposes no restrictions on the transfer of funds into or out of the country.

11.Be aware of what you need by way of passports, visas and residency permits.

All visitors to the UAE must hold a passport that is valid for three months from date of entry. British citizens are granted a visit visa, free of charge, on arrival. Visas are valid for 60 days and, for a fee, may be renewed once for an additional 30 days. Holders of British passports not endorsed British Citizen (that is, those born abroad) must produce tickets and documents for their next destination and have a sponsor in the UAE to cover their stay.

Residency in Dubai - Anyone wishing to work, open a bank account or rent accommodation must hold a residence visa. There are two types, one available to those employed in Dubai by a company, the other granted to family members of those so employed.

12. Learn about Dubai's economy as a means to better understand the value of your purchase

Dubai is less dependent on oil than the other UAE states. Because its reserves are predicted to run out within the next few years, it has consciously sought to diversify, a policy that has been outstandingly successful. Oil revenues have been reinvested to create a modern infrastructure and amenities. Dubai has built its current wealth mainly on its role as an international focus for commercial and industrial development, investment and tourism, and has become a regional centre for international corporate headquarters and computer and media companies. Fifteen free trade zones are being developed, including the world's first e-business free zone. A free trade zone is an area within a country where import duties and taxes are abolished, quotas reduced or eliminated and red tape significantly decreased, to encourage foreign organisations to do business there.

Dubai also has a tradition of undertaking vast development projects, which have included the construction of the world's tallest hotel.

13.Note the availability of good communications in Dubai.

Telephone - Dubai has an excellent, modern telecommunications system. The Emirates Telecommunications Corporation (Etisalat), which is required by the Telecommunications Regulatory Authority to censor Internet sites, has a monopoly on most business and personal telecommunications services in the UAE. However, a new telephone company and Internet Service Provider, a subsidiary of Dubai Internet City, has recently been launched to serve expatriates who have purchased freehold property within the UAE.

Internet - Dubai has numerous Internet cafes charging reasonable rates.

Post - There are no postal deliveries in Dubai. All mail is sent to post office boxes. Most residents use their company P.O. box address for private mail, but it is possible to rent a personal box from the central post office in Karama.

Buying a property in Dubai, or anywhere else abroad is a major decision and one that should not be taken lightly. It is vital to ensure you have researched all aspects thoroughly and are in possession of all the relevant facts.