The UAE has been the hub of attraction for many commercial centers. Every day one or the other business pops up in the country. Several businesses established in the country reach new heights of success.

The diverse population of the UAE is one leading contributor behind the bountiful business opportunities.

Apart from favorable demographic factors, the country’s financial regulations are also perfect for a business to thrive. Both new and established businesses in the country are blessed with an ideal environment for entrepreneurship.

A major benefit for businesses in the UAE includes the ease with which commercial property mortgage loans can be acquired in the country.

What is a Commercial Mortgage?

A commercial mortgage is any mortgage for commercial property, including office buildings, retail spaces, industrial buildings, hotels, and more. Commercial mortgages usually have higher interest rates compared to residential mortgages and take more time to process due to the complexity of appraising the underlying property.

Commercial Property Mortgage Loans Dubai 2022

Commercial property mortgages for a business can help in covering a significant amount of the cost of a commercial real estate property. A business can also purchase commercial assets with such loans, which could not have been possible to purchase otherwise.

Even if a business can afford to purchase its commercial property, a commercial property mortgage loan can help businesses retain the cash for future use.

Commercial property mortgage loans can offer numerous other benefits. The benefits will depend upon industry, business opportunities, and situation. But every business can gain something or the other from a commercial property mortgage loan.

Steps To Apply For A Commercial Mortgage Loan

You need to follow a few steps before applying for a commercial mortgage loan. The steps are as follows:

1. Assess Your Financial Status

Can you repay all your monthly installments? Before applying for a commercial mortgage loan, you need to show evidence.

A lender needs to know that your business will be capable of repaying the loan. You have to show that your financial status can deal with commercial mortgage payments. You need to have a practical idea about your finances before applying for a commercial mortgage loan. You need to check the maximum payment your business can afford to pay every month. 

2. Find A Property

You have to find a property before you can apply for a commercial mortgage loan. You should begin by creating a list of requirements in terms of location. It will help in narrowing down your search for the perfect business location. The major leasehold commercial properties like labor camps and warehouses are located in Free Zones. Some of the other major industrial areas in the UAE include the following:

• Dubai Investment Park
• JAFZA
• National Industries Park
• Dubai Production City
• Dubai Industries Park
• Al Hamra Industrial Zone 
• KIZAD
• Al Ghail Industrial Area
• Al Jerf Industrial Area
• SAIF Zone

Your industry and business activity will play a key role in detecting the perfect location for you. Free Zone areas can be perfect for businesses dealing with export, import, and warehousing. Such companies will be able to have full business ownership and tax exemptions in the Free Zone areas. 

Businesses dealing with manufacturing, trading, engineering, or transportation can benefit from commercial properties at Mussafah in Abu Dhabi and Al Awir, Jebel Ali Industrial areas, and Al Qoz in Dubai. The Sharjah Industrial area would also be a perfect commercial location for such businesses. 

You should engage with a real estate agent to begin your search for the ideal property. A real estate agent can help you get on platforms where property owners have made their listings. But you need to be careful while finding a reputable real estate agent to help with your search.

3. Find A Trusted Lender

You can approach various lenders in the country for your commercial property mortgage loan. You can go to a reputed bank to get your commercial property mortgage loan. For instance, RAKBANK can offer you a low interest rate of 2.69%. You can get twenty five years of repayment tenor if you opt for this loan. You can also ask your acquaintances to recommend lenders appropriate for your business.

Remember, commercial property will be the heart of your business. Therefore, choose a lender who will be able to understand your company and its business operations. Your lender should become a partner in the growth of your business.

4. Draft A Business Plan

When you approach a lender, they might ask for an elaborate business plan. You have to provide them with a clear idea about your business plan. You need to show them your plans to make your business venture more profitable.

Your business plans and projections need to be as detailed as possible to earn the trust of the lender. If the lenders feel confident about your business, they will be more likely to lend you a commercial property loan. The lenders will be eager to know how the new commercial property will impact your business and lead to future growth.

5. Think About Other Fees And Costs

Apart from paying the mortgage rate, you will have to think about the other costs associated with taking out a commercial property mortgage loan. You have to focus on the valuation fees and processing fees. Some other costs include legal fees and property insurance fees. You also need to think about the redemption fee in case you pay off your mortgage early. 

Commercial Mortgage Loan For A Startup

A startup often struggles with arranging its finances. A commercial mortgage loan can help in obtaining fixed assets while repaying the loan easily. A startup will be able to increase its equity while maintaining its liquidity for more productive purposes. 

Commercial Mortgage Loan For An Established Business

An established business will have more financial prowess than a startup. But a commercial mortgage loan can become beneficial for an established business if it wishes to expand. An established business can also obtain a higher loan amount which will ensure the stability of the business in the long run. 

Buying a commercial property in the UAE is quite straightforward and can be done without much hassle. You only need to follow the right steps and get in touch with a trustworthy financial partner and property advisor.  

Final Thoughts

Buying a commercial property in the UAE is quite straightforward and can be done without much hassle. You only need to follow the right steps and get in touch with a trustworthy financial partner and property advisor.  

Have you been planning to take a mortgage to purchase a property in the UAE? You might have to make some changes to your plans. The low home financing rates in the country will see a rise in the year 2022.

According to reports from a Reuters survey, the price of residential properties in Dubai will see an increase of 5% in 2022. It was initially predicted that the rise would be around 2.5%. 

A lot of property investors had already made their minds before the year 2022 kicked in with a rise in home financing rates. It is quite evident from the rise of mortgage-backed home sales in the second half of 2021. In the last six months of 2021, mortgage-backed home sales made up half of the overall property sales. Homeowners did not fail to take advantage of the low mortgage rates at around 3% to 3.5%. 

The value of properties in the UAE marked a sharp rise in the period between 2014 and 2015. But property values at most locations in the country were available at way below the peak rates in 2014 and 2015. However, the low value of properties will cease to exist from this new year.

The prices of properties at varied locations are showing a steady rise. The surge is expected to continue at around 3% even in the year 2023. 

Some of the long-term rental areas include Al Nahda, Bur Dubai, Dubai Silicon Oasis, and Jumeirah Village Circle. On the other hand, some particular locations for luxury units include Palm Jumeirah, JBR, Downtown Dubai, and Dubai Marina.

The two prime end-user locations, Dubai Marina and Downtown Dubai, are in particular likely to witness the rise in property prices. The jacked-up home finance costs will be accompanied by more than one rate hike in terms of mortgage rates.

But mortgage rates will see an increase for another leading reason. The UAE Central Bank has announced a closer watch on the local banks. All lending’s related to real estate, including mortgages, will be under the supervision of the UAE Central Bank. Due to the scrutiny of a higher regulator, the banks are likely to turn more conservative. All types of financing related to real estate will become more complicated than earlier. 

What Can A First-Time Property Buyer In The UAE Do In This Scenario?

Experts have suggested that opting for a long-term fixed rate will be more beneficial for first-time buyers. The most prudent choice will be mortgaging between three and five years linked to a low follow-on rate. It will ensure that first-time buyers can budget for the longest possible term. It will also help in mitigating risks in the case of changing circumstances. 

First-time buyers can be saved from unexpected bills by settling for long-term fixed rates. Sometimes variable rates seem appealing to first-time buyers. But a first-time property buyer in the UAE needs to remember that this is a period of low-interest rates.

It can only be estimated that the interest rate will be on the rise in the upcoming days. Therefore, sticking with fixed rates would be a cautious step to take in the current scenario.

Why Should You Choose Fixed Rates Over Variable Rates?

The current market trend shows that an increasing number of people are settling for fixed rates over variable rates.  

Fixed rates offer a lot more security than variable rates in the current scenario. People looking forward to a budget for a specific period of time should choose fixed rates without second thoughts. In fact, even lenders favor fixed rates over variable rates in the present circumstances. Banks offer more options in terms of fixed rates than variable deals.

The fixed rates can be for one year or for as long as fifteen years. But the mid-term options from three years to five years are more convenient. It enables people to assess their plans at the end of the fixed rate deal period. People looking forward to refinancing their current home loan should not let go of this opportunity. They can switch to a cheaper deal if their current rates are higher than market rates.

Choose The Best Mortgage Rate

ADCB is currently advertising their mortgage rates below 3%. On the other hand, Emirates NBD has pegged their rate around 4.5% to 5%. Some other leading local lenders have kept their rate around the 3.5% mark.

Some lenders try to counter the low rates with the help of a floor rate. It indicates that the mortgage rate will not fall under the floor rate irrespective of market conditions. It creates a huge sense of security for lenders. 

Wrapping Up

Homebuyers need to focus on some factors beyond the interest rate. The factors include fee finance, offset accounts, and overpayment allowance.  

With every passing day, the United Arab Emirates is becoming a popular destination in commerciality. Places like Dubai and Abu Dhabi face rapid and extensive growth because of their ever-growing and flourishing businesses across the globe.

In an endorsement of this happening vogue, you will find that the mortgage market in the UAE is extremely well acclaimed. All the international banks, along with the local banks of Emirati, are providing mortgage financing to all individuals (both immigrants and UAE nationals) seeking to buy a property(s) for themselves in the nation.

However, are you aware of how you can buy a property for yourself in Dubai, and what are the conditions to entail? If not, there is nothing to worry about as you are just in the right place.

In this article, we will discuss how you can receive a pre-approval for a mortgage in Dubai and all other things that are associated with it.

Property In Dubai: How Can You Buy?

It has been long prevalent that you can buy property in Dubai in two distinctive ways – either on a mortgage or liquid cash.

When you purchase a property through cash, you will find yourself beneficial as the cash transaction will be extremely cost-effective. On the other hand, if you purchase your property on a mortgage, you will be bestowed with greater flexibility to manage your finances.

So to attain greater flexibility, you might be planning to purchase your property on a mortgage.

For the same reason, you need to understand how you can avail yourself of home loans in the United Arab Emirates and what you need to do to be granted one. Continue reading this article to learn more about it.

Mortgage In Dubai: Who Is Eligible?

If you are planning to purchase a home, villa, or even an apartment in Dubai, you must have planned it very well indeed! You can easily secure a home loan for the same purpose only if you meet the given eligibility criteria. Some of the criteria for qualifying for a mortgage in Dubai are:

• You should be between 21 and 65 years of age.
• It would be best if you were a United Arab Emirates national resident.
• Your regularity in the source of monthly income should be AED 25,000 for self-employment and AED 15,000 for salaried professionals.

However, it would be best to note that the minimum salary requirement for home loans could vary from bank to bank as per their guidelines. You will also find that certain banks have initiated additional eligibility requirements.

Nevertheless, you must clearly understand all the guidelines of the various bank policies and apply them accordingly.

Is A Non-Resident Eligible For Mortgage In Dubai?

Indeed, non-residents can distinctively explore the mortgage options in Dubai, but they are extremely limited. There are probably one or two banks in the Emirati that deal with and bestow home loans to non-residents for buying property there.

Since the options are very limited, it is always advisable to become a UAE citizen and then explore the mortgage options to buy a property for yourself.

Home Loan In Dubai – Documents Required:

Before purchasing a property on a mortgage in Dubai, you need to apply for it only if you meet the eligibility criteria guidelines as per the bank of your choice.

The interest rates for home loans in Dubai are as low as 2.02% per annum. Like any other procedure, a mortgage also involves a lot of paperwork. Some of the essential documents that you need to provide your money lender before filling in a mortgage application are:

• A photocopy of your Emirates ID
• A photocopy of your Passport and Visa
• A photocopy of a salary certificate will act as proof of employment
• Photocopies of bank statements and pay slips for the last six months from the day of applying.
• A photocopy of residential proof – either a DEWA bill or a tenancy contract.
• A photocopy of the latest statements of your credit card(s).

As a non-resident of Dubai, you only need to have – 

• A photocopy of your passport.
• A photocopy of all your bank statements for the last three months.

Mortgage In Dubai: How To Get Pre-Approved By Your Lender?

If you have already decided to purchase a property in Dubai through financing, you will be required to go through a series of procedures only to get pre-approved by your lender. You need to follow these steps one after another to get approved for acquiring a mortgage and a property for yourself. The steps are:

• Find Yourself A Lender

You will find that home mortgages in Dubai are acquired through financial institutions like banks associated and legally registered with the Dubai Land Department or the DLD. You can hire yourself a potential broker who will obtain the best mortgage loan on your behalf, or you can directly approach a bank that is feasible for you.

Nevertheless, you must remember that mortgage brokers have accurate knowledge and indispensable insight about the current scenario of the home loans available in the local market. So with the help and suggestions of the rightful broker, you can streamline your focus on finding the right property for yourself and not spend much of your energy and time on the whole mortgage process.

• Select The Right Mortgage

When you are about to apply for a mortgage in Dubai, you will find several types of mortgages available. These mortgages significantly fall into the categories of variable-rate and fixed-rate mortgages. However, before you choose the right mortgage for yourself, you need to look out for several factors that will help you decide which type of mortgage will suit you the best as per your occurrences. Some of the factors that you need to look out for are:

• • The kind of property you are looking forward to buying
  • The type of your lifestyle
  • The amount of cash deposit you are capable of paying
  • The amount of mortgage or home loan you require to purchase your property.

• Obtain A Letter For Pre-Approval

The ideal and the primary step to acquiring a mortgage in Dubai is through the pre-approval letter. This letter is usually granted as an official document by the financial institution or bank that has approved you as an eligible client to purchase property(s) financing.

This letter of pre-approval also delivers an outline that shows the limit of how much you can borrow for purchasing your rightful property in Dubai. When you apply for a mortgage from any banking institution, your pre-approval letter will be delivered to you within three to five working days significantly.

• Choose The Right Property

Once you have been pre-approved for a mortgage in Dubai, you must be well acquainted with your budget and everything related to it. With these things right in their proper place, it is ideal for you to look out for the rightful property as per your taste. You will get adequate time to choose the right and perfect property for yourself as the pre-approval letter holds a validity from 60 days up to 90 days, as per the choice of your lender.

• Finalize And Secure Your Property

Once you have found the perfect match for you, you need to reach out to your bank to finalize the agreement for financing. The bank might take the help of a property evaluator to measure your desirable property, thereby offering you a fair amount for financing.

In the end, when you and your seller agree on an offered price, you can clear your deposit and fix some other date for the completion of other transactions as per requirement. 

Once you are done with everything mentioned above, the seller will transfer your property to you on the final day after completing the entire procedure. On this day, your lender bank will propagate the mortgage amount to the seller from whom you are purchasing the property. And this way, you will have a property of your own in the United Arab Emirates.

Mortgage In Dubai: What Are The Rates?

The mortgage rates of the United Arab Emirates widely differ from financial institution to institution on various factors like – property, lender, and the financial condition of the borrower, that is you. After considering all these things, you can get a clear idea of all the prevailing mortgage financing rates.

As per the rates of 2020, the fixed rates of mortgage commenced at 2.75% for one year, 3.89% for three years, 3.99% for five years, respectively. In the last few years, the mortgage market of the UAE has considerably slowed down for various reasons. However, the mortgage rates of the UAE can greatly vary with the nation’s oil prices and economic conditions.

To Conclude

While you are thinking of buying a property in Dubai with the help of financing, you need to get some of your documents handy and then file in for an application. Once approved, you can easily purchase a property of your own.

There is a general belief that Islamic mortgages are better than conventional mortgages as there isn’t any interest rate. This is what makes even the non-Muslims interested in this system.

But before you go ahead and apply for Islamic mortgage, here is a bit of insight to help you understand this mortgage and its points of difference from conventional mortgage. 

Defining conventional mortgages 

In the case of conventional mortgages, financial institutions like banks lend money for buying new homes and they charge a certain interest on that loan. Conventional mortgages are made of the amount borrowed (the principal) and the interest charged.

As with most mortgages, the interest and principal get paid off monthly within twenty-five years, which is the reason why they’re termed as repayment mortgages. 

At the start, most of the payments made by a borrower are focused at paying the interest, while a small part goes in reducing that principal amount. When the term end comes near, this process switches such that more amount gets paid off from the actual loan every month. 

Related : Best Mortgage Rates in UAE 2022

Defining Islamic mortgages 

Islamic home loans work in a different manner as an Islamic financial institution is prohibited to charge interest. A number of Muslim financing models exist, though Ijarah and Murabaha are the key models utilized for home loans. 

Understanding Riba free 

As per the legal jurisprudence of Islam, lending money to earn profits from an investment activity, such as real estate financing isn’t an acceptable way of commerce. In simple words, interest (or Riba) is completely prohibited. 

An obvious cause is that, a loan in Islam is supposed to be a kind of charity – a chance for a person to aid another who is facing a tough situation. The lender can only expect to receive the amount they lend out. Loans aren’t the way to earn money. 

Islam also prohibits buying or selling anything that has zero intrinsic value. Loans with interests are basically paying for money using more money. Since money contains zero intrinsic value, it cannot be bought. 

Murabaha model of financing 

In this case, the bank buys a property on the customer’s behalf and resells that to them again at a profit. The buyer uses monthly installments to pay the money back to the bank. 

Muslim banks require collateral for protecting themselves against their buyers failing to make repayments. Thus, the property remains bank-registered until the mortgage payments are fulfilled, though there are a handful of banks that include the name of the tenant on the title deed. 

Islamic mortgages have an advantage that borrowers need to pay no additional interests for late payments, although banks might charge fixed fees.  

Ijarah model of financing 

The Ijarah model of Islamic finance is basically a purchase and lease-back arrangement. The model is helpful when you are purchasing a property off plans because no payments have to be made until a property gets completed. 

The endnote 

Hopefully, this clears up the differences between Islamic mortgages and conventional mortgages. You now have the basic idea to decide which path to choose.