Everything you need to know about buying a home in the UAE

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More than 80% of people in the UAE who don’t currently own a home expect to make a property purchase in the next five years, according to a new study from HSBC.

However, there are serious barriers to achieving that ambition – particularly for millennials. According to the study – which took 1,000 responses from UAE residents – 45% of millennials said saving enough for a deposit on a home is a barrier to buying property. And 64% said that they would need a higher salary before looking at buying a home.

Indeed, only 26% of millennials in the UAE own their own home. And according to HSBC, property prices aren’t helping things. The average property price in the UAE fell by 5.4% in 2016, but salaries in real terms are expected to grow by only 0.5% in 2017.

The problem is exacerbated by the fact that the research shows millennials fail to get their houses in order when it comes to financial planning for their home purchase. Of millennial non-owners intending to buy a home in the next two years, 21% have no overall budget in mind, and a further 60% have only set an approximate budget.

Therefore, HSBC said that it wasn’t surprised to find that 70% of millennials who bought a home in the last two years ended up overspending on their budget. This could be tied to the fact that only 45% of millennials planning to buy a home said they would consider spending less on leisure in order to save money for a deposit.

“While we do appreciate that the market conditions today are challenging, there are clearly areas where people can make improvements. By getting a full view of your finances and remaining committed to a budget, you can go a long way towards reducing existing and future pain points,” explained Kunal Malani, MENA head of consumer value management at HSBC Middle East’s Retail Banking and Wealth Management department, in the summary of the report.

“We can’t emphasise enough on the need to plan early and to start saving,” he added to compareit4me when taking us through it.

Unexpected costs

So what unexpected costs were people stung by that made them go over-budget? Well, according to the report, 64% said that broker fees was the most common reason why they overspent, while 62% said they overspent because of legal fees. And 57% said they went over-budget after deciding to redecorate or renovate after moving in.

According to Malani, people looking to buy a home for the first time should consider these expenses when setting out their initial budget. Indeed, he said that they should be worked into the deposit saving plan.

“People felt they spent more than they planned to – not on the price of the house, but the unexpected expenses. Some weren’t anticipating broker fees or legal fees – that’s going to cost about 6% over and above the price of the house,” he explained.

“So we suggest that prospective buyers should plan to have about 35% of the value of the house set aside before making a purchase – to cover the deposit, to cover the legal fees, to cover renovation.”

That said, millennials aren’t the only generation to find the full cost of buying a home higher than expected. According to the report, 67% of recent home owners found the total cost of buying a home was more than they had budgeted.

Why go to all the trouble?

Well, to put it simply – owning a home makes you happier, according to the report, anyway. Nearly four in five homeowners surveyed said they’re very happy with their homes, and the report showed that homeowners are happier (89%) than non-owners (76%).

Is now a good time to buy?

According to Craig Plumb, head of research at JLL MENA, a consultancy, many people seem to think so.

“Some years ago, the market was very much dominated by investors, not really intending to live in the homes. But about 35% of all sales in 2016 in Dubai were financed through mortgages – up from only 17% in 2011. That means that the market is shifting away from speculative buyers and investors towards homeowners,” he told compareit4me.

Indeed, this attitude is backed up by JLL’s research. Plumb said that, in Dubai, property prices likely won’t be getting any lower. “Every housing market is cyclical, and we’re coming to the bottom of the cycle in Dubai,” he explained. Prices probably won’t be skyrocketing this year, but they won’t be getting much lower, making now as good a time as any to buy in Dubai.

However, Plumb also said that, in Abu Dhabi, property prices are likely to continue falling, so if you’re looking to buy property in Abu Dhabi, it may be worth waiting a little while longer.

How to get onto the property ladder  

In its report, HSBC said that there are practical steps that you can take in order to work yourself up to buying your first home. Here’s a quick guide:

1 – Plan early and don’t underestimate the deposit

Start planning early to make home ownership a reality sooner. Include saving for the deposit, usually the first payment you will need to make. And find a competitive mortgage to help make borrowing the rest more affordable.

2 – Budget beyond the purchase price

Think about the extra things that will make the house you buy the home you want to live in, and be sure to include them in your home purchase budget.

3 – Consider what sacrifices you can make

Consider cutting back on your day-to-day spending. Think outside the box about what could help you to buy a home, such as buying with a family member or friend.

4 – Get a full view of your finances

Think of your mortgage as part of your long-term financial plan, not as a one-off transaction. Different types of home loans suit different needs and situations. Seek professional financial advice if you need help to make the right choice.

Ready to start looking for a mortgage? Click the button below to compare home loans from the UAE’s leading banks!

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