I have begun thinking seriously about buying a home rather than renting and have started saving for a deposit. If I can allocate Dh10,000 per month and need a property in Abu Dhabi of at least three bedrooms, how should I structure my plan to save a reasonable amount in the quickest time? BB, Abu Dhabi
Ben Crompton, managing director of Crompton Partners Estate Agents
If you will be in the UAE for any length of time then buying is certainly an option to seriously consider. Renting means you pay large sums to your landlord but don’t get the opportunity to recoup that amount. When you buy property a portion of your rent (essentially your bank financing repayment) goes into paying down your loan. When you sell your property you should recoup this amount.
Three-bedroom properties in Abu Dhabi start at about Dh1.4 million for an apartment in Al Reef Downtown and go up to more than Dh8m for a three bedroom villa on Saadiyat. If you need bank financing to purchase your property, Central Bank regulations state that you will need to have at least 25 per cent of the full purchase price in cash for the bank to lend you the rest. This rises to 35 per cent if the property is worth more than Dh5m and to 40 per cent if it is your second home in the country.
So if you were looking to buy an Al Reef three-bedroom apartment, you would need 25 per cent of Dh1.4m, which is Dh350,000 and would take you 35 months on your current savings plan. That is three years saving at Dh10,000 per month.
Another way to release finance is if you have property abroad. Some lenders abroad will finance loans on UAE property, so this may be an alternative source for a purchase in the UAE.
It is worth noting that you will also need money to pay the transfer fee on the property and fees related to the bank’s financing such as arrangement fees.
If you can’t borrow the amount you want this may be because you have credit cards or car loans. Consider cancelling credit cards and paying off loans to increase the amount you can borrow.
Warren Philliskirk, director of Mortgage Finder
You are definitely making the right move if you plan to stay long-term in the UAE, as rent is ultimately dead money. However, the challenge is your ability to save the required funds for a three-bedroom unit. Let’s consider a starting price of about Dh2m (at the lower end of the market), which in turn would mean a total cash requirement of Dh645,000 as a worst-case scenario – that factors in a 25 per cent deposit plus agency, bank and transfer fees. It would take more than five years to get to the amount required. In the meantime there will be an appreciation in property values and your target will keep moving away from you.
The solutions for you would be to potentially get assistance from family. If this isn’t possible, then rather than give up it would still be better to look at a smaller unit that you could save for in a more reasonable length of time and then rent out. This would then offset the dead money you would be paying in rent and build capital, as the tenant would be paying off your mortgage and the value of the property would also be increasing. At some stage when you are closer to your savings goals you could then sell the smaller unit and the proceeds could go towards your new purchase. This would be a way of growing your capital at a healthy rate while you save more.
Next Money Clinic:
I signed up for an offshore investment plan with a UAE financial adviser eight years ago. The value of the 15-year plan – taken out for my retirement – has never been worth more than the amount I have invested into it. The penalty fees for an early exit are high, and coupled with the weak performance of the funds I will potentially lose about Dh80,000. Do I cut my losses and exit the plan now or keep putting money in? IM, Abu Dhabi
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