To buy or not to buy that is the question in Dubai

With many industry experts claiming that Dubai property is on the up once again,we look at the truth about taking a leap of faith and becoming a property owner.

First, one must consider the availability of funds and how easy it is now to come by a mortgage lenders who continue to fight for market share.

Aside from offering initial mortgage rates for as low as 3.5 percent and LTV levels around 80 percent, banks are slashing arrangements fees and timescales to process approvals. Let' say you get pre-approval, what do you now? You have 20 percent equity and you're currently paying a Dh 120,000 rent for a two bedroom apartment in Downtown Dubai.

Remember that the initial interest rate that the banks advertise to attract customers is generally in place for only a year, after the initial 12 months, the mortgage will revert to a standard variable rate to a standard variable rate of around 6 percent.

The average selling price of a 1,400 sq.ft two bedroom apartment in the Downtown area stands at around Dh1.6million. 
You will need to pay 2 percent of the purchase price to the seller's agent and an additional 2 percent of the land Department for the title transfer fees, which, in this example, amounts to Dh 64,000. 
You will then need to commit a 20 percent deposit to the bank, which will leave you with a Dh1.28 million mortgage. Ignoring the first year's payment at 3.5 percent to 4 percent, you will revert to a 6 percent variable rate, equaling Dh76,800 (interest) per year. There are service charges which, in the Downtown area, will average to about Dh 23/sq.ft., amounting to Dh32,200 per year. You now have guaranteed payment of Dh109,000 per year and that's before you start making any repayments on the loan itself.

On the face of it, your savings are dwindling and your gross to net income is just breaking even. But this food for thought, especially if you think of the potential capital gains one could benefit from.