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Property mania has certainly hit Dubai and there are numerous high quality projects available from studio apartments to lavish villas. This property market shows no imminent indications of a slow-down so here are a few tips in case you are about to or have already invested in the Dubai property boom. If you take heed to a few of these pointers BEFORE you make your purchase, you will be glad that you
Consider using an offshore company?
There are numerous reasons but in Dubai it achieves 3 main objectives if established correctly. Moreover, this step should be taken before committing to a property purchase since transfer fees are now enforced by some developers if done after the event.
1. When buying in Dubai, very few investors appreciate that the legal system here is different to that they may have at home. In the event of death, the property does not necessarily pass to the wife since Sharia Law (the governing law of the UAE) determines otherwise as laid down in the Koran (An-Nisa Chapter 4 para 7 onwards). In order to ensure the property is passed on to those you wish, an offshore company could be established with the spouses as Directors. In the event of death, the shares of company are passed on to the surviving spouse and beneficiaries. Although the spouse has died, the offshore company has not thereby an internal transfer of shares circumvents this potential Sharia issue. Remember a Will or buying in joint names will not circumvent Sharia legal issues.
2. Many speculative investors, who purchase property with a view to re-selling before completion for profit, have to overcome the issue of transfer costs. Dubai is to introduce a standard transfer fee but at present fees can range from 1-8% on the selling price depending on which project you are selling. If the property was bought in the name of the offshore company then the transaction of ownership can be achieved by selling the company. In essence, you sell your offshore company that owns a property and not the property itself. The physical property will always remain in the name of the company – just the Directors and beneficial owners will change.
3. You may wish to buy in the name of the offshore company which is particularly useful when estate planning for investors who have death or capital gain tax issues to mitigate. Of those Governments that impose death taxes, (e.g. Inheritance Tax in the UK) you will be taxed on your worldwide estate in the event of death. “Worldwide estate” is the key word since it is not just the assets you have at home. So for example, if you are a British domiciled person with houses in the UK, Dubai and Monte Carlo, on death you will be taxed at 40% on all assets including property after an allowance of £263,000. Since the average cost of a house in the UK now is about £250,000 then there is a fairly big tax bill coming for your beneficiaries. The other key word is “domicile” – it does not matter how long you have lived overseas, if you were born or have spent a substantial period (17 years) in the UK you are deemed domicile. Trying to lose your domicile status is very difficult indeed. With careful planning this potentially huge tax bill can be mitigated.
Have you explored all the finance options?
There are a number of lenders in Dubai and many more overseas. Interest rates vary locally and one should be careful to study all the caveats and clauses very carefully with local mortgage providers. For example, 6.5% in Dirhams is relatively expensive when you consider the Dhs is pegged to the $. Interest rates have risen this year and are forecast to climb further so ensure you can maintain payments in the event of an interest rate hike. It is worth remembering that interest rates have not always been at this level and for those who have been in the UK property scene for sometime will remember the high interest rates in the 70’s & 80’s and the resulting negative equity and bank repossession debacle. Ensure you have secured in writing your finance solutions before committing to any development since not all projects in Dubai have finance options which your realtor may forget to inform you in advance.
Get some Loan Protection
Most lenders will require some form of protection so in the event of your death or diagnosis of a terminal illness your loan is covered. If you cannot pay your mortgage, Banks will keep your house and you have to find somewhere else to live. Banks would prefer not to repossess since the value of the property may have fallen in value (yes, this can even happen in Dubai!) to a level below the outstanding loan amount. Moreover, if the reason you cannot pay is because you are terminally ill, you certainly do not want to be homeless as well. With critical illness affecting 1 in 4 of us at some stage in our life, lenders will require that you have sufficient protection to cover the amount of loan you have secured. A British person, who smokes, under the age of 40 can be covered for £250,000 for about £170 per month. Make sure you are properly covered if you are venturing into real estate.
Beware of Exchange rate fluctuations
If you are capital raising on property in another country and bringing money gradually to Dubai to meet the phased payments as required by the developer you could fall victim of currency fluctuations. Dirham exchange rates fluctuate all the time and predicting when the best time to move you money is is key. Because the size of your purchase is sizeable these difference could be substantial. By securing the services of a wholesale currency dealer you can fix an exchange rate over a period time and even secure cost free transfers. Your bank will never offer as competitive rates and certainly will charge you for every transfer you make.
Insurance
How long will the developer cover any defect on your new property purchase and what is exactly covered. If you are buying a villa you are responsible to insure the cost for rebuilding it should it burn to the ground. In all cases, insuring your contents is commonly overlooked in the United Arab Emirates. Look at our homepage for deal with have with Norwich Union.
Have you appointed a Lawyer?
If you were buying a property in other parts of the world you would ensure a Lawyer would carry out your conveyancing including a survey of your property before you would part with any monies. Strangely, many overseas investors seem to overlook this important process altogether for some unknown reason when the need for specialist knowledge is crucial. How do you know that the apartment on which you have just put down a deposit has not been sold to three other investors? There is no formal conveyancing in Dubai but I stress to all my clietns that some form of legal opinion should be sought on any development they intend purchasing.
Get a good overview of all your options
This is particularly important in the financial services world since obtaining an independent solution of all your options is key to the success to any financial plan. This should not be any different in the property world and make sure you do your research before committing to anything. Find out from your realtor if they can offer all the developments in Dubai or are they restricted to just a few developments.
There is no doubt that the Dubai property scene is very exciting and will continue to offer great investment opportunities to investors. However, do not go into any project blind; do your homework and seek professional help where necessary. If you take heed to some of the advice above you can ensure your property dream does not turn into a nightmare. |
