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» Buyers Guide

Buyers Guide

Commercial vs. residential property investment pros and cons
 

Most people think of residential property when they’re thinking about investing, but commercial property has its rewards too.
 

The benefits of investing in commercial property
 

Leases tend to be much longer anything from three to 20 years - and they are quite often secured by bank guarantees, which makes them a secure investment
Rent is reviewed annually and is usually increased based on mutual agreement and/or the LAW as it prevails.

Commercial tenants will also tend to maintain the property better as the look and condition of the property is important to their business and their staff. But commercial leases also have added protection for the owner in the form of make good clauses, maintenance clauses and management clauses.

The return on invested capital on commercial properties ranges between 7% and 10% net after all costs.  Residential property investors must pay all outgoings and other costs, although of course this can be negatively geared. Deductible rates on commercial property, though, are higher than for residential because of higher depreciation rates.
 

The benefits of investing in residential property
 

You need a smaller deposit, which can be important in particular if this is your first investment property. Depending on your credit history and income, you can even borrow 100% of the purchase price. Commercial mortgages require a deposit of at least 30%. Rates on residential mortgages also tend to be lower.

Lenders are much stricter on borrowing criteria for commercial properties and if the property is not let at the time you purchase it, you may have to pay more in terms of incidental costs.The commercial property market can be less predictable than the residential market (where historically properties tend to double in value every 7 to 10 years). There are also different kinds of commercial property to consider such as commercial, industrial and retail. With proper research, you may find that you are more comfortable making the decision about which type of property to invest in.

Although residential leases are shorter than commercial ones, residential properties are generally easier to let, meaning you will have less time when the property is vacant. It can take months to find a new commercial tenant.
Whether you choose residential or commercial property, the more you know about your market, the safer your investment will be
 

How much money can I borrow?
 

The amount you can borrow, commonly known as your borrowing capacity or borrowing power, will differ from lender to lender.
 

How much do I need to save for a deposit?
 

The deposit required depends largely on the type of home loan and, of course, the lender you select. As a general rule, if you are an owner-occupier you will require 5% of the purchase price as a deposit. If you are an investor, you will ideally require10% of the purchase price, although it’s possible to purchase with less.
 

What other costs are involved in a home purchase?
 

As a rough guide, it is recommended that you budget 5-7% of the purchase price, on top of your deposit, to cover fees and charges. These fees and charges may include (but are not limited to):

Developer administration fees
Land Department TITLE DEED REGISTRATION fees
Agency Commissions as applicable
Valuation fees
Lenders mortgage insurance (LMI)
Insurances
Connection fees/deposits phone/gas/electricity|
 

Until 2002 it was not possible for foreign nationals to own freehold title to property in Dubai…however, in a bid to boost investment into Dubai, His Highness Sheikh Mohammed bin Rashid Al Maktoum announced that he would change the laws back in 2002 and a property boom ensued.

Until 2006 however, the law change was not in effect and those who bought beforehand took a significant risk.  They were also the ones to gain substantially from the huge rise in real estate prices that the emirate has enjoyed!  Nowadays buying property in Dubai is incredibly straightforward and safe, and you can even get mortgages locally or internationally to assist your purchase.
 

Dubai property buying process
 

If you’re buying a property off plan or during construction the process naturally differs a little to when you buy a completed or resale home.  Off-plan or real estate in Dubai that is under construction is selected by a buyer and a reservation payment of is made whilst purchase contracts are drawn up.  This reservation fee is non-refundable.  Once a purchase contract has been drawn up and signed by the buyer and representative of the vendor, a deposit is required and then payments are made in stages during the construction process.  Buyers who choose this method of property purchase should ensure that their stage payments relate to a stage in construction being met and not a time period having passed.  This is because some developers encounter construction delays and a buyer should not have to pay anything until a certain amount of progress is made on their property.

It is usual for a buyer who selected a Dubai property off plan to hold back a small final percentage until completion to ensure the construction is completed properly.  Once final inspection has been made, keys have been handed over and possession of the property has been taken over by the buyer, deeds will be transferred into the purchaser’s name.
One of the additional benefits of buying property in Dubai is that purchasers are given residency rights in the emirate.  These rights apply whether you buy new or resale property.  If you choose to go for the latter option then the buying process is slightly different to that covered above.  For a start an offer has to be made to the vendor  this is usually only a verbal offer and, if accepted, both parties in the sale sign a preliminary sales contract and a deposit is paid…this can be up to 10% of the purchase price.  This deposit is generally non-refundable unless the vendor withdraws from the sale which they can only do under exceptional circumstances.

If a buyer will require a mortgage in Dubai they must have this agreed in principle before signing any contract and parting with any money.  With a mortgage agreed in principle, a lawyer instructed to act on the buyer’s behalf, a verbal offer made and accepted and a preliminary sales contract signed and deposit paid, any conditions of that sale that have to be met such as successful searches being completed etc., a final contract is drafted and signed and all monies remaining are transferred.  Finally, the property for sale is transferred into the name of the new owner.