A new rule from the UAE Central Bank will cause a major change in the way UAE property buyers fund their purchases beginning on February 1, 2025. The new rule would require buyers to pay these fees upfront since banks can no longer finance some real estate-related expenses.

Although the goal is to encourage responsible lending, this modification may result in greater upfront expenses for Dubai real estate buyers. Here is all the information you require for this significant update.

What is the New Central Bank Directive?

The UAE Central Bank will enforce a new regulation that prohibits banks from funding two significant fees related to real estate transactions as of February 1, 2025:

• Dubai Land Department (DLD) registration fees (4% of the property value)
• Real estate broker commissions (typically 2% of the property value)

The new regulation will boost the overall upfront cost of buying real estate in the UAE since buyers would have to pay fees out of pocket.

Why Was This Directive Introduced?

Several significant issues in the UAE real estate industry are intended to be addressed by the new directive:

• Encouraging Responsible Lending: The Central Bank hopes to motivate buyers to thoroughly evaluate their financial preparation before making real estate acquisitions by prohibiting banks from financing these costs.
• Preventing Excessive Borrowing: Buyers are less likely to take on excessive debt when fewer fees are being financed, which lowers the risk of financial strain for the buyer and the banking industry.
• Aligning with International Standards:  This shift ensures a more stable environment for investors and long-term growth by bringing the UAE’s real estate industry closer to global best practices.

The Impact on Buyers: A Breakdown of Upfront Costs

Now that these new regulations are in effect, buyers will have to cover a more significant percentage of their expenses upfront. What to anticipate is broken down as follows:

• Down Payment: 20% of the property value for properties under AED 5 million and 30% of the property value for properties over AED 5 million.
• Dubai Land Department (DLD) Fee: 4% of the property value
• Real Estate Agent Commission: 2% of the property value
• DLD Trustee Fee: AED 4,200 (fixed)
• Mortgage Registration Fee: 0.25% of the loan amount
• Title Deed Fee: AED 500 (fixed)

Previously, buyers might have financed up to 80% of these fees. But now they have to pay these fees in full, which raises the total upfront expenses to about 6–7% of the property’s worth.

Understanding the Key Upfront Costs

A closer look at the main expenses that customers will now have to pay upfront is provided below:

• Down Payment:  The biggest expense is the down payment, based on the property’s worth. 20% of properties under AED 5 million and 30% of houses over AED 5 million will require payment from buyers.
• DLD Registration Fee: The Dubai Land Department imposes a 4% fee to register for a real estate transaction. This cost aids in the legal transfer of ownership and is non-refundable.
• Real Estate Agent Commission: Real estate brokers often charge a 2% commission in exchange for their knowledge and assistance in the purchasing process.
• DLD Trustee Fee: The cost of completing the transaction through an approved trustee center and validating it is covered by this AED 4,200 fee.
• Mortgage Registration Fee: The DLD imposes a fee of 0.25% of the loan amount to customers who are taking out a mortgage in order to register the mortgage formally.
• Title Deed Fee: To issue the title deed, which is the official document attesting to property ownership, this AED 500 charge is necessary.

Adapting to the Changes: Strategies for Buyers

Buyers will need to change how they approach buying real estate in Dubai due to these increased up-front expenses. The following techniques will assist you in adjusting to this change:

• Save for Higher Upfront Costs: To pay the extra 6-7% in fees that must now be paid upfront, it’s essential to begin saving early. When the time comes to make the purchase, this will help guarantee you have the money.
• Consider Off-Plan Properties: Off-plan buildings frequently provide more accommodating payment schedules, which let purchasers stretch out their expenses over time and lessen their immediate financial strain.
• Seek Professional Mortgage Advice: Mortgage consultants can assist you in finding financing solutions that fit your budget and in understanding the latest regulations.
• Maintain a Contingency Fund: After the purchase, it’s essential to have extra cash on hand to cover unforeseen expenses like furniture or house remodeling.

This new rule will have greater consequences for the Dubai real estate market as a whole in addition to affecting individual buyers:

• Change in Buyer Behavior: Demand for off-plan properties, which usually provide more flexible payment choices, may rise as a result of the higher upfront prices. Interest in secondary market assets that demand prompt payment of fees may decline.
• Market Stability: Greater upfront expenses lead to less speculative purchasing. This results in more steady price increases for real estate and a more secure market for long-term investors.
• Developer Adaptations: To stay competitive in the market, developers could respond by offering more flexible payment arrangements, like post-handover installments or down payment discounts.
• Global Comparisons: The UAE’s decision is consistent with comparable laws in markets such as the UK, Singapore, and Hong Kong. This policy is expected to lower market volatility and promote long-term stability.

The UAE Central Bank’s directive increased upfront expenses for real estate buyers. However, it also aligns the market with global norms, promoting sustainability and stability.

Buyers will need to modify their budgets, put money aside for unforeseen expenses, and look at flexible payment options, such as off-plan properties. These adjustments might also contribute to the long-term stability and appeal of the Dubai real estate market, which would be advantageous to both domestic and foreign investors.