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Know it
Help and Planning:
There’s no doubt that the Dubai property market is very exciting just now, and will continue to offer great opportunities to both investors seeking a return on their money and those looking for an entirely new way of life.
But remember, do not go into any project blind, and plan your purchase properly.
Our Service to you
Dubai It offer a full step-by-step advisory service pertaining to all the necessary legal, financial and offshore planning aspects of your Dubai property purchase.
We will take you through the relevant buying process of each individual developer and and development, offer professional help where necessary and advise on issues such as the financial options, property insurance, exchange rates and any legal implications you must consider.
Surprisingly, too many overseas investors seem to overlook the importance and the need for specialist knowledge when planning their overseas property purchase.
Listed below are some prominent aspects of the Dubai property purchase:
  Offshore Solution |
One way of ensuring that your property passes to those you wish in a timely manner is to establish an offshore structure with you and your spouse as directors. At the time of your death, the shares in the company will pass to the surviving spouse and any other beneficiaries you may have nominated. Despite your death, the offshore company will remain extant and an internal transfer of shares will overcome any potential Sharia-based issues.
Remember, neither a will nor buying in joint names will totally circumvent United Arab Emirates law, but the simple offshore solution will make your property Sharia friendly.
If you’re buying with a view to reselling for profit, you will have to overcome the issues surrounding transfer costs. Dubai is due to introduce a standard transfer fee. At present, fees can range from 1% to 8%, depending on the project you’re selling. If the property was bought in the name of an offshore company, the transaction of ownership can be achieved by selling the company. In essence, you sell the offshore company which owns the property, not the property itself. The physical property will remain in the name of the company. Only the directors and beneficial owners will change.
Buying in the name of an offshore company is also useful in estate planning, if you have death or capital gain tax issues to mitigate. All the governments which impose death taxes, for example, the UK’s Inheritance Tax, will tax your world-wide estate when you die.
“World-wide estate” is the key here, since it is not just the assets you own at home which will be taxed. If, for example, you’re a British domiciled citizen with houses in the U.K., Dubai and Monte Carlo, following your death, your estate will be taxed at 40% on all its assets, including property, after an allowance of £263,000. With the average value of a house in the UK now about £250,000, your beneficiaries will be facing a fairly big tax bill.
The other key word is “domiciled”. It doesn’t 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 to be domiciled there. It’s pretty difficult to lose your domicile status but, with careful planning, the potentially huge attendant tax bill can be reduced.
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| Explore the Financial Options |
As you may guess, there are many money lenders in Dubai, and of course, many more overseas. Interest rates vary locally, so it is important to study all the caveats and clauses very carefully when you’re dealing with local mortgage providers. For example, 6.5% in dirhams is relatively expensive when you consider the dirham is pegged to the US dollar. Interest rates are forecast to climb during the rest of this year, so you must ensure you can maintain your payments, should the climb turn into a hike.
Most lenders will also require some form of protection so that, in the event of your death or the diagnosis of a terminal illness, your loan is covered. If you cannot pay your mortgage, the banks will take possession of your house and you’ll have to find somewhere else to live. The banks won’t want to do this, since – even in Dubai – the value of the property may have fallen below the outstanding loan amount.
Beware Exchange Rate Fluctuations
If you are raising capital for your property in another country, or bringing money into Dubai to meet the phased payments required by a developer, be aware that you could fall victim to currency fluctuations. Despite the inherent stability of the local economy, the dirham exchange rate does fluctuate.
Predicting when to move your money is key. Because the sums involved in your purchase will be sizeable, the exchange rate differences could be substantial. By securing the services of a wholesale currency dealer, you can fix an exchange rate over a period of time, and even secure cost-free transfers.
Your bank will never offer such competitive rates, and will almost certainly charge you for every transfer you make.
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| Inheritance Issues |
It’s also very important to remember that property inheritance is governed by Sharia law, which is different to the laws of the United Kingdom and the rest of Europe.
The principal difference is that, in the event of death, your property will not necessarily pass entirely to your wife, since Sharia law (the governing law of the United Arab Emirates) determines otherwise as laid down in the Koran. The Sharia courts govern how your estate is divided up. They may take into consideration the fact that you have a will, but the final decision will be made by the judge in court.
In simple terms, the usual division of an estate is one quarter to a son, an eighth to a wife, another eighth to a daughter and the rest divided between the deceased’s mother and father, wife’s mother and father, his uncles, aunties, brothers, sisters and so on. In many cases, even if there is a will, it is likely to be overlooked and will – in any event – have to be translated and attested for the local courts.
In a recent example of how this can affect foreign buyers, the Sharia court ruled that a property should be disseminated in accordance with Sharia principles. Fortunately, the spouse was on amicable terms with all the extended members of her family, and they all have her their share after the event. In another case, the judge ruled in accordance with the will, but insisted on all the family members showing up in court. Relatives had to fly in from Australia and South Africa to attend the proceedings.
It goes without saying that no-one wants to spend precious time and money to satisfy the needs of the courts of any country, particularly at such a difficult and stressful time.
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| Appoint a Good Lawyer |
If you were buying property in the UK, you would – like anyone else – engage a lawyer to carry out your conveyancing, including a survey of your property, before parting with any cash.
Surprisingly, many overseas investors seem to overlook this important process when the need for specialist knowledge is crucial. For example, how can you be sure the apartment which you have just put a deposit on has not been sold to three other investors if you don’t ask a lawyer to investigate?
There is no formal method of conveyancing in Dubai, but it is vital you engage some form of legal opinion before entering into any negotiations on any development you intend to buy.
It is equally important to take out proper insurance cover. You must establish for how long the developer will cover any defects on your new property and what exactly is covered. If you are buying a villa, for example, you will be responsible for insuring the rebuilding costs should the property burn to the ground.
And it’s important to insure the contents of your property – something which is commonly overlooked in the United Arab Emirates.
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| Buying in Dubai |
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| Points to Remember |
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| Top Tips for Buying Abroad |
Follow these simple rules and you can’t go too far wrong:-
• Never sign a contract that you do not understand (for example – if it is in a foreign language).
• Always ensure that you seek specialist advice from independent solicitors, architects and surveyors before considering a purchase overseas. They should be proficient in your chosen country’s laws and processes and also know the specifics involved in buying property there.
• Before proceeding with the purchase (and would especially apply to a resale property, regardless of age) ensure an independent valuation of the property is carried out, which should point out any problems with the property – i.e. subsidence, damp, wiring defects – and could also possibly highlight any boundary disputes etc.
• Ensure you do not inherit a debt on the property before you purchase, which a solicitor should be able to check – i.e. if the developer has borrowed money to build the development and this amount has been allocated against each plot as additional security to the developer’s bank.
• Always give yourself a ‘cooling off’ period if you see a ‘must-have property’ and are tempted to put down a deposit there and then.
• If you are arranging finance on the property, ensure that this is stated in any contract and you have an ‘opt-out clause’ if the loan is not agreed (which will ensure any deposit paid is refunded).
• Try to arrange a mortgage finance ‘in principle’ before agreeing to purchase the property, or before signing any contracts and paying over a deposit.
• Arrange your mortgage in the currency that you earn in, where possible, unless you are going to receive rental income from that property in the local currency, then this may be a possible alternative option, dependent on the lender’s criteria.
• Think about combining your cash with friends or family: it could bring a villa with pool within your financial reach, rather than simply an apartment.
• Check with the estate agent or vendor that you are aware of the costs charged by the legal and government authorities for purchasing a property in your chosen country.
• Open a bank account in your chosen country and ensure you get a Certificate of Importance for the money you bring in from your home country.
• Set up standing orders in a local bank account to meet bills and taxes. Failure to pay your taxes in some countries, such as France, Portugal and Spain, could lead to court action and possible seizure of your property.
• Remember that bills do not end at the asking price. Lawyer’s fees, taxes, insurance etc. must all be met in your host country and can often be more expensive.
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| Buying Off-Plan |
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