Off-Plan vs Ready Property: The Truth About Dubai Mortgages for Foreign Buyers

You know, an agent will call me and say, "Hey, I've got this great client wants to buy X. We found the property. We signed the form F. He's financed by." I'm like, "Well, how are you going to do that?" The banks cannot release any money to the developer until the buyer's fifty percent of original purchase price has been paid. So, how easy is it for a foreigner to secure financing on their project here in Dubai? We're going to answer some of those questions here with the expert. We are going to have Mr. Warren Phyllis Kirk, the director of Mortgage Finder, here on the Dubai Connect podcast to answer these questions and more. Welcome to season six of the Dubai Connect podcast, a top-ranked Dubai real estate show. I'm your host of the Dubai Connect, Ghada Benitez, a certified international property specialist and a licensed realtor connecting global investors with prime real estate opportunities in Dubai's thriving market. So, welcome Warren. I'm so glad to have you. So, good to be here. I always want to introduce that you have been in this market doing financing here for how long. Yeah, double decade now. Twenty years almost. So yeah, a lot of time here. And you're one of the first. Yeah, that's right. And you also work with the banks to even work on what's happening because it's still a newer market. It's still baby here. Yeah. I mean, obviously, we've got a great relationship with all the banks, probably the oldest relationship with the banks that brokers would have here. So they ask us to come in, brainstorm with them, what's new, what can be improved, et cetera. And there's it's an embryonic market still. It has a long way it can go from here even though it's doing really well. Actually more can be done. I remember when we first, I think it was a couple years ago, because this is my sixth season of the Dubai Connect podcast, but I remember there that we were still talking about fresher numbers. What was the percentage even a couple years ago of mortgages compared to cash buyers in Dubai. It was much, it was more like a thirty, thirty percent mortgage, seventy percent cash buyers. And that's and the longer you go back probably the less that, less that goes. But now we're seeing typically, it's a split fifty-fifty, which is a good signal because end users use finance. They're longtime investors. It's their home. So it's indicating stability in the market, and that's good. So yeah, from that point it's all very positive. And so even with that fifty-fifty, with fifty percent of those potentially many of them with off-plans, so maybe. Absolutely. So in the end when it comes to handover, those off-plan buyers still may use finance. So it's slightly skewed to the actual end result. It's probably higher than fifty. Which leads me to this question that I'm asked often. How easy is it for a foreign investor to secure financing for their real estate projects here in Dubai. Okay, so if you're talking about finished property, okay, you need to differentiate between finished and off-plan. We'll touch back into off-plan next, but for finished property, there's multiple banks that are available. Typically, the banks will lend up to a maximum of sixty percent of the open market value. Mortgage term twenty-five years, up to sixty-five if you're salaried, seventy if you're self-employed. Okay. Now, there's different ways the banks will underwrite the mortgage process. There's a full document process where they will examine, if you're salaried, your income, your expenditure, your credit report in your home country, and they'll look at all that in exactly the same way as it would be assessed in your home country. And they'll also take in your home country liabilities, which is where things can get tight, because the banks will work here with fifty percent of your income typically as the maximum the banks can use to support any lending here or elsewhere if they're doing a full document process. So that's quite, I mean where it gets difficult, the type of buyers here if they're overseas are property people. So they'll likely have property portfolios in the home country. Obviously when they get their credit report they'll see all those things. Banks here won't take the rental income streams from overseas with the liability. So it might be working fantastic, fantastic portfolio, but when you look at it from that calculation it doesn't work here. So thankfully there's low doc options as well. Now the low doc options are based on your last three to six months personal bank statements, depending on which bank we're looking at, and they look at the average running balance over the daily period. In simpler terms, the mortgage payment can't exceed fifty percent of that. Okay. When they do it in that method they don't look at any of your home country debt. They won't even generally look at a credit report unless the loan's going over a certain level. And it's a very simplistic way of doing it really. Why would anybody choose one or the other though. With the full doc options, there can be slightly better rates. Okay. Yeah. Probably if we were looking at it today, the rates would be as low as sort of four point thirty-nine for a full doc. Whereas a low doc is going to start at five and a half. So it's really up to the buyer to come in and say, "Okay, these are this is the situation. You're going to pay a little bit more if you want to go into this, but this is the risk." Absolutely. Yeah. And then or you can do the low doc and you pay a little bit more. And the good thing is, with the amount of leverage, you know, you're taking of fifty to sixty percent, and with the rental yields at the moment running at, conservatively, seven percent, conservatively, a five percent rate doesn't sound that, exactly, still works. You're still going to be positive at that. What market? I don't know, you would be the expert. What market in the world, right, where your rental is greater than what you're paying out for your finance. Exactly. It's a very strong position to be in. We're seeing everyone doing really well out of it at the moment, and the demand is growing at such a pace that we're not going to keep up with that for, for the near future, I don't think. Thank you for saying that because that's another question I hear. Do we see a bubble happening here? Is there going to be over supply happening here. I mean, look, no one has a crystal ball, right. But, if the population continues to grow at the pace it's doing, and you've tried to drive around recently, it's not easy at the wrong time of day. That's the metric. They're not going to be able to deliver at the pace of growth. So, if that's the metric, then we are going to still see prices increase, rentals increase. So people want to buy. People are staying here. They're not in and out these days. They're making the UAE their home, Dubai their home. So there's super strong demand. Thank you. So now let's go into the off-plan. Off-plan. Okay, so finance for off-plan, this year really there's been a lot of speculation about what you can do, what you can't do. Now basically the off-plan finance that is available in the market is typically only available to master developers, such as, let's share, yes please, Emaar, Dubai Properties, the big government-backed developers, basically because the banks are super comfortable with them. A lot of the banks are owned by the same entity, so it's all in house effectively. Now there are exceptions to that, where the likes of DAMAC has just announced some financing as well, and other larger private scale developers can source finance as well. When it's off-plan, the finance is based on a fifty-fifty basis. Now, the banks cannot release any money to the developer until the buyer's fifty percent of original purchase price has been paid. Okay, they can't do. They might be able to agree the deal slightly earlier and lock your mortgage offer in and sign, and that's it, all done, but they can't disperse until that point, which is a central bank mandated rule. Nobody can get around that. Got it. Okay. Now there's been a couple of marketing campaigns recently where it's been named as, pay early. Basically it means pay early and we'll lock you your your agreement in now, but it doesn't really make a lot of sense. Why do you need to? You're not going to get any discount. The developer just gets their money early and you can lock your form in early. In certain obscure situations that might be beneficial, if you're having a change of circumstances, you needed to get your finance locked in now. Yeah. Okay. Otherwise, why wouldn't you just wait until, because in that circumstance, you'd be paying in advance just to sign a piece of paper versus making that less capital work for you and see what's happening strategically at the time of handover, because maybe you decide to sell the property because capital appreciation is so great and take that money into another project. So it's limiting the options. It didn't really make a lot of sense. You can do it anyway, but why do it early unless there's a personal reason. Now, when you say you do it, if I may clarify something, the fifty percent for the master developers, is that for foreign investors. Yeah, absolutely. Absolutely. There are options for non-residents off-plan, but it's the choice range goes slimmer and slimmer. Off-plan, off-plan, there's probably twenty-five percent of the banks in the market would consider it. Okay. Off-plan, non-resident, we're getting down to okay, one. Okay. Name one, which would be. Yeah, well, we won't name names. Don't pay me enough. The bank, the bank's the one. But there's one bank that will facilitate off-plan financing for at the fifty percent for foreigners. Yeah, exactly. It's the same for. Is it a higher rate though then because of. It can. Yeah, it would be a little bit. Yeah, I'm assuming. But the difficulty is that particular bank, it's a full document process. So we don't have the luxury of the low doc. Okay. So it's tough. I mean we've done some recently, but it's very unique. Okay. I mean I always come to you because obviously I know if anyone can do it it's going to be you. My next question is that there has, I've seen a lot of quote unquote expert brokers in the market and other experts say that, oh get the Golden Visa and then you're a resident and then you can secure the lower mortgage rates when you're financing. May you please address that misconception. It's a common myth basically. Now, the banks derive what rate they're going to charge you, whether a resident rate or a non-resident rate, on where your income comes from, not whether you've got a visa or it doesn't matter. It's where your income comes from. So, if your income is from outside the UAE, but you've got a Golden Visa, it's going to be a non-resident appraisal of your circumstances and the rates charged applicably on that and the loan to values, et cetera, et cetera. So please stop sharing misconceptions and mistruths. This is why working with someone who really understands, because I don't want my American investors to make a decision assuming that, oh well I'm going to buy this two million dirham property, it doesn't matter who the developer is, and I'm going to get the Golden Visa right away because now I don't need to wait anymore. And since I have the Golden Visa now when I hit fifty percent or now I'm going to get a lower interest rate because now I have the Golden Visa and then they make a decision based on lack of accurate strategy advice. It's very frustrating for clients to come over with an expectation of a higher loan to value and a lower interest rate because they've just got a visa, and then suddenly they can't. It's annoying and I get a call every other day on the subject from agents or clients, et cetera. And then we have to say well no, this is how it really is. Which is disappointing for them. Sometimes it can still work. Sometimes it's like, well, I've wasted my time. So you've got to be fair with people. Absolutely. Make sure they know exactly how things are. I mean, that's the reason why I started the Dubai Connect podcast. It was because at the time, now we're seeing, of course, record number of Americans and Canadians coming. When I first started coming a couple two and a half years ago, that was not the case. Americans were not even in the top ten buyers. And when I would ask, I have a whole source because I also have a license in California. So I would ask these investors, "God, Dubai just makes more sense than California. May I ask what has made, what, why are you hesitating to invest in Dubai?" And it was a lack of facts and knowledge and someone that understands the American buyer mentality to really walk through, educate, and put place all the information out there. So that by the time an investor comes to me, if they've watched all my podcast episodes, we have you, we have Muhammad Kaswani from Property Finder talking about the numbers, we have an attorney talking about legal requirements, we have the DLD talking about the regulations and how transparent the real estate market is, so they can make a well informed decision because Dubai is the hottest real estate market in the world. Absolutely. And I mean we say to clients all the time, if you are a finance buyer, let's do this two months before you get on a plane here. There's no cost to get an appraisal, a pre-approval from the bank. Exactly. But if you come, land on the ground, start looking, you're wasting your time. Absolutely. Because the market's moving so fast, there's no way you're going to be able to secure your finance and lock in the property. It's not going to work that way. So, thank you for saying that, Warren, because this is another thing I have to say. You just triggered something in me where I'll start talking to an investor and then they'll say, "You know what, I'm going to wait till I come there." And then I say, "Okay, you're going to come for five days. Nothing's going to happen in those five days when you come." First of all, if you're buying off-plan projects, we need to submit your EOI. Well, we first, let's back it up. Let's talk about your goals, your timeline. Are you secure in financing? What's the rate going to be? When does financing come in? Are you looking for short-term, long-term rentals, capital appreciation? Then we curate some options for you. So, I love what you just said. You need to do your research before. People get disappointed because an agent will call me and say, "Hey, I've got this great client wants to buy X. We found the property. We signed the form F. It's a finance buy. I'm like, well, how are you going to do that? Because you're just not going to be able in this market, because it's moving so fast, to get the timeline you need on that form F to facilitate it. Very, very rarely. So, everyone's just wasting their time. And these need to be things that are done, worked out in advance. We can do it remotely that people don't have to come in to secure a pre-approval. So, they come in, they know what their budget is, they know how much it's going to cost them. If they find something, they're in a position to put an offer in. It's got to be done that way. Simple as that. Absolutely agree. And thank you for really sharing your knowledge and expertise on this, because obviously you've been doing this the longest. Let's go into the off-plan now and I do have another episode that we've done I believe two seasons ago, but I want to ask you now again, steps A through Z for an off-plan project of how to secure financing. When is a good time to come in and start talking to you at that point and what's the process. Okay. So, as we touched on earlier, the off-plan financing is available from the second fifty percent that's due to the developer. So, the banks can start facilitating stage by stage payments on your behalf to the developer after the fifty percent paid point that you've made yourself. Okay. Now, assuming you can, in a situation where you can secure the finance, as we said, it's not easy. Assuming you can do that, you would probably do that once you get to the forty percent paid point of view. That's when you would look to secure your actual finance for the second fifty percent. Now, if somebody is a little bit sort of reticent or cautious at the very beginning because they don't want to commit before knowing they can get financed, we could get them a pre-approval at that point, right, and it would just expire because they're only valid for like ninety days, but it gives them the reassurance that they know when they do get to the milestone they'll be able to go back refresh it and get it, as per the requirements. But in most cases with the banks, it's only, well, apart from one bank actually, it's based on the original purchase price. Okay. So if you're buying an off-plan property in the secondary market, you've got a budget for the first fifty percent to the developer plus any premium to the seller, and then the bank would come and finance the second fifty percent. Now, most people in my experience, if they've got that budget, they're a cash buyer, okay. But if somebody's right at the beginning of plan launch, et cetera, we can guide the client, explain how it's all going to work in the long term, prepare them, do a pre-approval if they want to, and then when they know, when they get to that fifty percent paid, we can, but when you're saying fifty percent, what if it's not one of those government developers that's financing at fifty percent, then when do we start the process. It wouldn't be possible until handover. So what point at handover would it be, a month before, two months before, two weeks before. Yeah, I mean, the general, the developers will give you notice. Your handover is expected at X. Orientation to come and inspect. At that point in time, that's when we would start getting the pre-approvals. As I say, for a non-resident case, it's likely going to take three to four weeks to get a pre-approval anyway, so it can all run in parallel. Okay. But we work with clients in advance of that as well because maybe we need to explain to them how they need to prepare themselves, with the right statements, the right financial things in place, so when we submit the application, we're not going to hit any blockers. So would you say two months before handover. Well, I would say for our part, six months. Six months. I'm speaking to my client, say okay, let's have a look at everything. I really wanted to understand, so six months for my review, for your review, actually starting with the bank, a month before requirements. Okay. Okay, great to know that. And then what is the process at that point. So they come to me, let's do a case study. It's somebody from the United States who's purchased, let's say property. So non-government. Okay. Okay. And they're sixty-forty. So it's almost handover. So they're going to be in it sixty percent already. Okay. Okay. What would. So we would go and get them the pre-approval. Okay. First of all, we'll ensure that that bank supports handover payments as well, because it's not a prerequisite that the bank will do a handover payment, even because of the way the registrations are done. So we make sure the right bank is made available, the pre-approval is secured. Once that's done, we'll ask for handover letters, building completion certificate copies. We'll instruct the valuation because at handover, even though it's a brand new property bought on off-plan, the bank will still want to do a visit to the property to do the inspection, coordinate the inspection. Now, we can do all this remotely so that the client doesn't have to come in for this bit. And we ideally we'll get it to a stage where the client's just coming in. So post pre-approval, post valuation, the offer letter, the contract has been prepared by the bank ideally. So the client can just come in, meet with the bank, open the account with the bank in most cases, sign and leave. That's what we're trying to. Fantastic. What about giving someone power of attorney so that they don't have to come over here at handover. Is that an option. Unfortunately, not with finance involved. The banks require the actual borrowers to sign wet signatures in the witness of the banks themselves, basically. So they have to at least commit to coming, which actually, that might be the time potentially, I'm just thinking out loud here, to secure the Golden Visa because there's that part of the Golden Visa where you do your health. Yeah. They'll have well, and also with the banks, depending on the size of the loan, all the banks generally want life insurance cover. Okay. Now, some of it's automatic, so you don't have to do below a certain level. Once you get over a certain loan size, you have to do medical for that as well. So, you got, so you might as well just do that all in one shot. So, you can do the whole purchase and the pre-approval process before you come, but you will have to come for the execution. For the execution. Okay. Thank you for clarifying that as well. Which developers can a foreign investor right now secure financing at the fifty percent mark here in Dubai. Okay. So typically it's all the master developers, the Emaar, the Dubai Holdings, all the big guys, and there are some of the bigger private developers as well. Like DAMAC recently launched quite a lot of financing that the banks are comfortable with. Is Expo City included in that. Expo City would be in there as well. And then what is the caveat, how far out from completion. Yeah, I mean, typically the banks will only want to start making payments when the closed finish date of the development is no more than sort of eighteen to twenty-four months away from completion. So one thing I have been asked, and it's unfortunately as us Americans that we have this mentality, but it's because of the socio-political climate in the United States, unfortunately when an investor comes here and if they have, let's say, US passport, are they not as able to secure financing if they also are citizen of another country, does it matter where they come from when it comes to securing financing. No, there's certain countries that the banks won't entertain. Obviously, obviously, Iran is one, obviously because of the sanctions, North Korea, okay, certain African nations as well, Russia. Russians are still allowed to borrow here with most of the banks. Okay. But banks will choose to or not to basically, depend on the situation. But aside from that, it's all very straightforward. Okay. Well, Warren, thank you. You're welcome. I want to thank you for always being so incredibly helpful because this is one of the most, because my clients are from the United States. It is a very mortgage-heavy mentality. Absolutely. Yeah. They understand the requirements and how it can help them get where they want to be. Exactly. And which means that they're leveraging less capital because, you know, the most successful people will obviously less, let's say, diversify into a couple different properties, leverage less of your capital and be able to benefit from the lower interest rates comparatively to other parts of the world. And the ease of securing the financing here is incredible for foreign investors. That's another misconception that I've had to dispel, that you can't secure financing as a foreign investor, which is why I asked that question first and foremost. So, I want to thank you. You're welcome. Nice to meet you. I am grateful for your professionalism, your expertise. I love the fact that you give me a little bit of tidbits. I think before maybe a lot of other people know about things that might be coming up. So, that's exciting because this is an evolving market. Oh, absolutely. Yes. That's really important to understand. What's happening right now does not mean that that's going to be the case in a year. No, it'll be completely, most likely simpler. There'll be more options and diversity within the mortgage market. So Warren, I will be asked a lot as well in the United States, is there a benefit or advantage to setting up a corporation and then purchasing under a corporation, or should I purchase under the corporation. How is that limiting once they secure financing. If you set up a company to hold the property, you still have to be a co-borrower with the company and guarantor. So it doesn't eliminate any of those factors. It doesn't sort of hide any of your income from that property or the fact that you own it. It's all recorded at the Dubai Lands Department. So the UAE has reciprocal arrangements with most countries globally to share information should that company ask. So it's not going to hide anything. And that's a common misconception. People think, okay, I put it in that, that might help. It doesn't. It's going to be a very weak cover. So, a waste of time basically. But it does have its purposes with clients who want to maybe put their children. I mean we have a lot of UK clients, high net worth UK clients, where obviously there's inheritance tax in the UK that anything over a certain amount you hit for fifty percent of your assets on death. So really tough taxation. However, if your children are already part owners of that asset, so your three children perhaps might have ninety-nine percent of the asset and you've just got one, they already own it, so they're not, that reduces that. Yeah, it reduces. So there are reasons that are personal to the clients that you would discuss with them. Would if I'm a corporation, am I able to secure financing in the name of the corporation. No, the banks will use certain free zone companies that they are comfortable with. The structure of the company generally must be a non-trading company. So you couldn't purchase it under the name of a foreign company or anything like that, or even if you use the wrapper of the company here that was owned by the foreign company, even that probably wouldn't be allowed basically. Okay. It's got to be very clear. So then is there really an advantage right now for someone who's coming and starting to build their portfolio, one, two, three, even four properties right now, from an accountancy perspective, there could be. Yeah. Because if you're going to come in every month and with flights and things like that, and you know, obviously soon as you put it into a company, it's also taxation here on the rent. Exactly. So you've got to offset that. So if but if you can offset the cost of your travel and expenses, then maybe it's all very, very personal to the client. Okay. And with that, I just want to say thank you. And if you have any other questions, please make sure to ask in the comments. Warren and I will answer them. If you need to be connected with Warren, let me know. And with that, I hope you will like, subscribe, follow, and stay tuned for the next episode of the Dubai Connect podcast. Happy investing.