How does due diligence work in Dubai?

Why does real estate in Dubai attract expats? Of course, a warm climate, endless summer and gentle sea are important. But the UAE also means zero real estate tax, state-of-the-art infrastructure, a high-quality labor market and the opportunity to obtain a residence permit for 10 years. For those who decide to buy property in the United Arab Emirates, it is useful to study all the details about the buying process. And the most important step is the examination of the property. In this post, we are discussing everything you need to know!

What is property due diligence?

Due diligence is an inspection of the property before buying it in Dubai or any other emirate. It allows the buyer to assess the financial, physical, legal and technical condition of the property and verify the accuracy of the information provided by the seller. The buyer can conduct an inspection on their own or involve specialists.

Why is a real estate appraisal necessary?

When buying and selling real estate in the UAE, verification is carried out by both parties. The seller is convinced of the solvency of the buyer, and it is especially important for the buyer to check the legal clarity of the transaction and the title deed before buying real estate. What are the risks if due diligence is neglected?

  • you can buy a property burdened with debts on utility bills;
  • you can buy a property built with violations or without a building permit;
  • you can get a lawsuit and deal with third owners that you did not know about before;
  • there may be persons who have the right to live in the house;
  • ex-spouses of the seller, heirs, etc. can lay claim to the property.

How is it carried out?

It is necessary to conduct due diligence after a preliminary agreement has been concluded and all details have been discussed (but not later). If violations or flaws are revealed during the examination, the preliminary agreement is terminated. The seller returns the deposit.

In practice, as a rule, the buyer does not check the property on their own. Usually, all types of expertise are carried out by special licensed agencies, realtors, notaries, and lawyers.

What is being checked?

As part of the audit, several types of expertise are carried out, which allow you to comprehensively study the condition of the property:

  • Legal expertise. It is checked whether the property has all the necessary permits, whether it has debts, whether the lease agreement has expired, etc. The price of such an assessment is on average about AED 14,700 ($4,000).
  • Financial and tax expertise. Within its framework, experts evaluate the costs of maintaining the facility and the estimated amount of tax deductions. The procedure costs an average of AED 7,345 ($2,000).
  • Technical expertise. The technical condition of the property is assessed. This allows the buyer to determine what repairs may be needed and how much it will cost, what is the quality of the acquired property. To carry out this stage and comply with all the rules of the technical inspection in Dubai, you will need professional help. The cost of this procedure is about AED 18,365 ($5,000).

Specialists can also conduct a risk assessment, check the prospects of the property and the selected location. Such a check will be useful if you plan to invest a large amount in real estate.

Expertise before buying property in Dubai

How to check property in Dubai before buying? The examination consists of several stages:

  • Regulatory review. Before making a deposit, the buyer must contact the Dubai Land Department and find out if the seller is the actual owner of the apartment (house) and land.
  • Transfer terms. This is the most important factor. Before signing the contract, you need to check if anyone else is claiming the purchased property.
  • Checking debts. It is checked whether the owner has debts to water supply and electric power services.
  • Legal review. When starting a transaction, it is necessary to check whether the property appears in lawsuits, whether there are lawsuits related to it.

What kind of real estate in the UAE can a foreigner buy?

It depends on the location of the property.

  • Freehold zones. These are freehold zones where foreigners can purchase housing in full ownership.
  • Leasehold zones. In these zones, the sale of property is made only in the form of a long-term lease. Its term is limited to 99 years. At the end of the term, the property must be returned to the owner. An alternative is to renew the contract in your own name or issue it to relatives. But only residents of the UAE and Arab countries have such an opportunity.

Rights of a foreigner owning a residential property in the UAE

Foreigners who have bought real estate in freehold zones have full ownership. They can not only buy, but also sell, rent, donate their property and pass it on by inheritance.

Buying real estate also allows a foreigner to apply for a long-term residence permit, or resident visa.

  • when buying up to three properties that cost at least AED 750,000 ($204,000) in Dubai, you can get a visa for three years;
  • When buying one or more properties worth more than AED 2 million ($544,500), you can get a golden visa: for 5 years – in Abu Dhabi and for 10 years – in other emirates, including Dubai.

In addition, you can use a mortgage (the main condition is to pay the amount required for a residence permit on your own). It is also allowed to purchase not only finished real estate, but also units in projects under construction (off-plan).

Inflation and geopolitical instability are pushing an increasing number of wealthy investors to move to the UAE. By reforming employment and visa rules, as well as constantly increasing the transparency of legal and financial procedures, Dubai gives investors additional confidence in the safety and efficiency of their investments. As a result, along with impressive sales figures for projects under construction, specialists record a high demand for ultra-luxury real estate.

Profitability of real estate in the UAE

In 2021, the International Institute for Management Development included the Emirates in the world’s top 10 countries by global competitiveness. The country is also ranked third in terms of living standards and development of trade. The UAE has a very strong currency. The AED exchange rate has been stable for 20 years now and has not fluctuated even during the pandemic: since 1997, $1 = AED 3.67.

In addition, the value of real estate in Dubai is growing steadily: average prices in the first half of 2022 increased by 10%, apartment prices – by almost 9%, and villa prices – by 19%.

Renting real estate in the UAE brings 5-8% per year, which is higher than the income from the deposit. Moreover, the demand for rent in Dubai is high: not only moving for permanent residence is popular, but also tourism. In 2022, the metropolis took first place in the Traveller`s; Choice Awards. It is a popular destination for single tourists, families with children and even pensioners. So an apartment in Dubai can be rented out both for a long and short term.

Taxes and fees

The registration fee for the seller and the buyer is:

  • AED 2,000 ($550) for housing that costs less than AED 500,000 ($136,000);
  • AED 4,000 ($1,100) for housing that costs over AED 500,000.

The Dubai Land Department (DLD) fee of 4% + AED 580 ($160) administrative fee is shared between buyer and seller, 50% each, or buyer pays the entire amount.

If you buy property through a realtor, their commission will be 2%.

AX CAPITAL will help you buy property in Dubai

Are you looking for a buy-to-live or buy-to-let villa or apartment in the UAE? Contact the AX CAPITAL real estate agency in Dubai. Our specialists will select a high-quality property, taking into account all your requests, guide you through all stages of the transaction and provide high-quality after-sales service. With us, buying property in Dubai is easy and safe!