Money clinic

Buying a piece of the Dubai dream is now easier than ever for expatriates - thanks to the wide selection of mortgages on offer from both local and international banks. The introduction of new laws last year made it possible for expatriates to buy freehold property in the emirate - and that combined with increased consumer confidence, means Dubai's mortgage market is booming.

There are over 11 banks providing mortgages in Dubai - and the sector as a whole is growing at a rate of 50% year on year.

But while there is a wide range of financing opinions available - expatriates must be aware of what makes mortgages in Dubai unique before taking the plunge and buying property.

Step one
Your developer and your mortgage

The first step to getting a mortgage in Dubai is to find out which mortgage provider you are actually eligible to apply to depending on the actual property you going to be purchasing.

Unlike in countries such as the UK, buyers are limited in their choice of mortgage by the property they are buying.

They can only get a mortgage from a provider, which has already established an agreement with the developer to provide finance for their particular property.

In Dubai expatriates are only permitted to buy property in areas designated by the government.

The majority of the homes in these designated areas are built by Dubai's three main developers - Nakheel, Emaar, and Dubai Properties - whose developments make up 70% of Dubai's property market.

Most mortgage providers will give mortgages for properties built by those developers.

However, those who buy property built by smaller developers may be limited to a choice of just one or two mortgages from providers that have agreed to finance those properties. The advantage of the system is that it provides buyers with some reassurance, and that most mortgage providers will carefully assess the properties built by smaller developers before choosing to finance them. They act as a screening agent for buyers and assess both the reliability of the developer and the development itself.

The downside is that some properties will have no mortgage providers at all attached to them which means anyone who signs a contract for the property and puts down a deposit before checking there is a mortgage available for that property could be left in a very tricky position.

Independent mortgage broker Chris Allen of Sphere Mortgages warns that this is a fairly common scenario and strongly advises customers to check with the developer of the property they wish to purchase before signing a contract or paying a deposit.

"There are lots of properties out there without any lenders attached to them. I get loads of people contacting me saying they are buying a property and then they tell me which one and I tell them there is no one available to finance that property. And there really isn't a lot you can do about that other than sell the property straight away."

Conventional or Islamic

Once buyers find out which mortgage providers they can apply to finance the property of their choice - they can decide whether to go for a conventional or a Sharia-complaint offering.

The cost of Islamic and conventional finance does not differ. What makes the two different is the way in which the products are structured.

Interest is not charged on Islamic home finance - instead a profit rate is calculated and incorporated into the monthly mortgage repayments.

Another key difference - and one which makes Islamic home finance attractive to many - is the fact that buyers of off-plan property do not need to make any payments until the construction of their property is complete.

This compares to conventional mortgages where customers will be charged interest on the repayments owed under the repayment schedule regardless of whether the property's construction is delayed or not.

There are two main types of Islamic home finance - Murabaha or Ijara. Murabaha is where the bank buys a property on behalf of a customer then sells it back to them at a fixed profit rate.

The customer then pays the bank back in fixed monthly instalments.

Ijara is a form of leasing agreement where the mortgage provider buys the property in its name then leases it to the customer who assumes full ownership once the mortgage repayments have been made.

Islamic finance providers also offer Istisna'a for customers who are constructing a property.

The bank takes on the construction of the property then sells it back to the customer once the construction is complete.

Although many expatriates are initially unfamiliar with the concept of Islamic financing, it is a very popular option with Islamic home finance providers Amlak and Tamweel dominating the mortgage sector with a 70% market share.

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