The emirate of Dubai, which is an emirate of the U.A.E, has emerged on the global business scene as a business hub because of its strategic location, business-friendly environment and state-of-the-art infrastructure thus making it an ideal destination for various business setups. The one sector that has benefitted the most from the rapid economic growth of Dubai is the real estate sector of Dubai. The standard of living, secure environment and the business opportunities provided by Dubai have made it a hub for real estate investments from around the world.
It is important to understand the nuances of residential and commercial property mortgages in Dubai for every investor who wishes to invest in the real estate market of Dubai. It is important to understand that to filter out the property of choice and to get the right mortgage deal on it, the help of a local and experienced consultant is required. Whether you’re a first-time buyer or an experienced investor, professional advice can help you achieve your property goals easily in Dubai. A reputed consultant company like ’GrowBiz’ can help an investor find the right property at the right price and can also help with getting the best property mortgage deal, whether residential or commercial, on it. We will now try to get an insight into the residential and commercial types of mortgages, the application process and eligibility criteria of the mortgage landscape of Dubai.
Residential Mortgage
The residential mortgage loan in Dubai is available to the citizens of UAE, expats and investors who want to purchase a residential property. The residential mortgage loan is a secured loan against the mortgage of the property itself.
Key Features:
- Loan-to-Value Ratio: In Dubai, the loan-to-value ratio is different for its nationals than the expats. For the citizens, it is usually 80% and for expats, it is usually 75%. This means that the down payment varies from 20% to 25% for the citizens and expats, respectively.
- Interest Rates: Interest rates on mortgages in Dubai are of two types; fixed and variable. Fixed amount monthly payments are provided by fixed rate mortgage loans while in variable rate mortgage loans amount of repayment installments may vary.
- Loan Term: In a residential mortgage, the loan term can be from 5 to 30 years and the loan term determines the interest rate and the repayment plan of the loan.
- Fees: The different fees on a residential mortgage loan may include loan processing fee, property valuation fee and registration fee.
Eligibility Criteria:
The criteria set by different banks and financial institutions in Dubai for a residential mortgage loan include:
- Credit Score: Banks avoid lending to individuals and businesses with a bad credit record. So they ask for the credit history of any potential borrower.
- Income: The banks and financial institutions also look at the income of the borrower and its stability to make sure that the borrower is in a position to repay the loan.
- Residency Status: The expats in Dubai have to show their long term residency visa which should be more than the loan term while the UAE citizens have to show their citizenship status.
Commercial Mortgage:
Commercial mortgages in Dubai which are loans to acquire commercial properties like industrial buildings, malls and retail spaces, the development of residential complexes, etc. often involve large loan amounts and as a result, have different options and policies offered by banks and financial institutions.
Key Features:
- Loan-to-Value Ratio: In Dubai, the loan-to-value ratio for commercial mortgage loans is 60% to 70% of the project or property value. This means that the down payment amount is significantly higher than residential mortgage loans.
- Interest Rates: Interest rates on mortgages in Dubai are of two types; fixed and variable. Fixed amount monthly payments are provided by fixed rate mortgage loans while in variable rate mortgage loans, the amount of repayment installments may vary. Rate of Interest on commercial mortgage loans is higher than the interest rate on residential mortgage loans.
- Loan Term: Unlike residential mortgage loan terms, commercial mortgage loan terms are shorter i.e. they range between 5 to 15 years. Although longer loan terms are also possible depending on the options given by banks.
- Fees: The different fees on a commercial mortgage loan may include loan processing fee, property valuation fee and registration fee.
Eligibility Criteria:
The criteria set by different banks and financial institutions in Dubai for a commercial mortgage loan include:
- Business Profile: Apart from the profile of the borrower business of a commercial mortgage loan, banks and financial institutions also look at the projected cash flow statements and business plan of the project for which the loan is being sought.
- Credit Score: Banks avoid lending to individuals and businesses with a bad credit record. So they ask for the credit history of any potential borrower and also of his business for a commercial mortgage loan.
- Property Type: The type of property and its revenue generation feasibility are important factors that banks and financial institutions look into before approving a commercial mortgage loan.
- Collateral: If the risk factor of the commercial mortgage loan is not being covered by the project property then banks can ask for additional collateral to secure their loan.