A Complete Cost Breakdown for Buying Property in Dubai

Buying property in Dubai can be an exciting venture, especially for international investors. However, the total cost often extends far beyond the property’s purchase price. The process, while rather complex in nature, comes with a myriad of additional expenses that can catch investors off guard, particularly during the final stages of the transaction. This oversight often stems from an insufficient assessment of both the related costs and one’s investment budget. Here’s a complete cost breakdown of all the additional expenses that occur when investing or purchasing property in Dubai.

Dubai Land Department (DLD) Fees

When considering the purchase of property in Dubai, understanding the associated costs is crucial. The Dubai Land Department (DLD) plays a significant role in this process, facilitating ownership transfers and legal documentation. However, these essential services come with unavoidable fees.

DLD Transfer Fee

One of the primary costs involved in buying property in Dubai is the DLD transfer fee. This fee is mandatory when ownership is transferred from the seller to the buyer and is typically paid at registration. The standard DLD transfer fee is 4% of the property’s total value. For example:

• A property worth 1 million AED incurs a transfer fee of 40,000 AED.
• A property valued at 5 million AED would result in a transfer fee of 200,000 AED.

Administrative Fee

In addition to the 4% transfer fee, buyers are also responsible for an administrative fee charged by the DLD. This fixed fee covers the administrative costs related to property registration and title deeds. The fee structure is as follows:

• For properties below AED 500,000, the administrative fee is AED 2000 or less.
• For properties above AED 500,000, the fee is AED 4000 or more.

Additionally, a 5% VAT applies to this administrative fee. For instance, if the administrative fee for a property above AED 500,000 is 4,000 AED, the total cost after VAT would rise to 4,200 AED.

Mortgage-Related Costs

Many buyers in Dubai, especially investors, choose to finance their property purchases through mortgages. It’s essential to account for the following costs related to mortgage processing when buying property in Dubai:

Mortgage Registration Fee

When securing a mortgage, buyers must pay a registration fee, established by the Dubai Land Department. This fee ensures the mortgage is legally recorded in the buyer’s name, protecting the lender’s interest. Typically calculated at 0.25% of the total mortgage loan amount, this fee includes a fixed administrative charge, AED 290. For example, if a buyer takes a mortgage of 1,000,000 AED, the total cost, including the registration fee and administration charge, would amount to approximately 2,790 AED.

Property Valuation Fee

Property valuation is a crucial aspect when obtaining a mortgage. This fee covers the professional assessment of the property, ensuring that the loan amount aligns with the property’s fair market value. A valuation reduces the risk of over-lending and verifies the property’s condition and legal status. Keep in mind that this fee is non-refundable, even if the mortgage application is rejected. 

Mortgage Processing Fee

Moreover, buyers should be aware of the mortgage processing fee. This one-time charge is levied by banks when a mortgage application is approved. Like the valuation fee, this charge is non-refundable, even in cases of loan disapproval. Most UAE banks charge around 0.5% to 1% of the total mortgage amount, inclusive of a 5% VAT. However, the exact fee varies depending on the bank and type of mortgage.

Home and Life Insurance

One of the essential considerations when buying property in Dubai is home and life insurance, particularly for those taking mortgage. Although home insurance is not obligatory for cash buyers, we do recommend it for protection.

Home Insurance:

Home insurance safeguards your property against potential damage, theft, fire, flood, and other risks. For mortgage holders, it is a necessary condition for loan approval. The estimated annual cost of home insurance in Dubai varies significantly; for apartments, it typically ranges from AED 1,000 to AED 2,500, while villas generally cost between AED 2,000 and AED 5,000. Luxury properties may require more than AED 5,000 for coverage. 

Life Insurance:

Life insurance serves as a critical safety net for those taking a mortgage for buying property in Dubai. It makes sure that their remaining mortgage balance is settled in the event of their passing. This protects families from financial burdens in a difficult time. The exact cost of life insurance depends on several factors, including age, health status, loan amount, and policy type. Generally, the estimated annual costs are as follows:

• Ages 25-35: AED 1,500 to AED 3,000
• Ages 35-45: AED 2,500 to AED 4,000
• Over 45 years: AED 3,500 to AED 5,000

Real Estate Agent Commission

Another unavoidable expense when buying property in Dubai is the real estate agent’s commission. This fee covers the agent’s comprehensive services, from negotiating between the buyer and seller to managing paperwork and legal compliance. Notably, the buyer is responsible for this cost unless there’s an agreement with the seller or developer.

The standard commission rate typically sits at around 2% of the property’s purchase price, with an additional 5% VAT. For instance, should you purchase a property priced at AED 1,500,000, the commission would be AED 30,000. When including the 5% VAT, the total commission will go to AED 31,500. While the standard rate is generally 2%, there may be opportunities to negotiate a reduced rate with your agent.

DEWA (Dubai Electricity and Water Authority) Connection Charges

Buying property in Dubai also involves setting up utilities through the Dubai Electricity and Water Authority, which incurs connection charges. This process requires payment for both the connection itself and a refundable security deposit. The connection fees depend on the type of property:

• For an apartment, the refundable deposit is around AED 2000.
• For a villa, the refundable deposit is AED 4,000.

In addition to these deposits, there are often other minor costs. These include a registration fee of AED 130 and a knowledge and innovation fee of AED 30. There are also activation charges for electricity and water that vary from AED 100 to AED 300, depending on the property. It’s also important to factor in the 5% VAT on applicable charges. Setup costs typically range from AED 2,260 to AED 2,500 for apartments, while villa setup costs may vary.

Security Deposit

When buying property in Dubai, a security deposit is often a requirement for resale properties. This deposit serves to secure the transaction and is typically 10% of the property purchase price. It is held in an escrow account, managed by the real estate agency or the Dubai Land Department.

Refund Conditions:

• If the sale proceeds, the deposit is released to the seller.
• Should the seller cancel the deal, the buyer is entitled to a full refund.
• However, if the buyer opts to cancel, they may lose the deposit unless specific contractual terms allow for a refund.

Example:

• For a property priced at AED 1,500,000, the deposit would be AED 150,000.
• For a property priced at AED 2,500,000, the deposit would be AED 250,000.

Annual Service Charges

Another essential cost that buyers often overlook when buying property in Dubai is the annual service charges. These fees are mandatory and contribute to the maintenance and management of the building or community. The annual service charges are based on the square footage of the property. Other factors like location, property type, and the amenities also influence the total cost amount. These charges typically cover:

1. Maintenance of common areas (hallways, lobby, parking, pool, gym)
2. Security services and CCTV monitoring
3. Cleaning and upkeep
4. Elevator servicing
5. Pest control and waste management
6. Landscaping, electricity, and water for shared spaces

Currency Exchange and Bank Transfer Fees (for International Buyers)

For foreigners buying property in Dubai, one significant cost to anticipate is currency exchange and bank transfer fees. When purchasing property from abroad, transferring funds in different currencies like USD, GBP, or EUR is often necessary. Here are some related costs to consider:

1. Currency Exchange Markup: Banks typically add a markup ranging from 0.5% to 3% over the current market rate. For instance, if the real exchange rate is 3.60 AED to 1 USD, the bank rate may be higher.
2. Transfer Fees: UAE banks charge fixed fees for wiring money, which can range from AED 50 to AED 500. 
3. Intermediary Bank Charges: If funds pass through correspondent banks, anticipate additional fees ranging from AED 100 to AED 500 per transaction.

Additional Fees and Charges

Conveyance and Legal Fees

One of the primary additional costs you’ll encounter when buying property in Dubai is conveyancing and legal fees. While hiring a conveyancer isn’t mandatory, many investors opt for this service to mitigate legal risks. If you are opting for this service, the fee would include:

• Legal documentation
• Contract review
• Ownership transfer processes

By investing in professional services, you can ensure that the transaction is compliant with UAE real estate laws. This includes everything from drafting and reviewing the sales and purchase agreement to liaising with banks for financial settlements. Typically, conveyancing and legal fees can range between AED 6,000 to AED 10,000, depending on the service provider. Here’s a breakdown:  

1. Basic Conveyancing: AED 6,000 – AED 7,000  
2. Standard Property Transfer: AED 7,000 – AED 8,500  
3. High-End Transactions: AED 9,000 – AED 10,000  

Short-Term Rental Permit

If you are buying property in Dubai to generate short-term rental income, you’ll need a short-term rental permit. This permit is issued by the Dubai Department of Economy and Tourism (DET) and has a few associated costs. The permit charges vary depending on the number of rooms in your property:

• Standard studio or 1-bedroom permit: AED 370
• Two-bedroom unit: AED 670
• Three-bedroom unit: AED 970
• Four-bedroom unit or more: AED 1,270+

In addition, there are mandatory charges totaling AED 1,520, which include:

1. AED 1,500 registration fee
2. AED 10 knowledge fee
3. AED 10 innovation fee

Property Inspection Fee

Additionally, if you want a proper inspection before buying property in Dubai, you’ll have to pay for this service. A professional inspection helps identify any issues or damages ahead of your purchase, ensuring the property’s condition meets your expectations. This detailed assessment typically covers:

1. Structural integrity
2. Electrical systems
3. Plumbing
4. HVAC (heating, ventilation, and air conditioning)
5. Pest infestations
6. Fire safety compliance

The costs for property inspections can vary based on the size and type of the property:  

• Standard Studio or 1-Bedroom Apartment: AED 1,500 – AED 2,500  
• 2-3 Bedroom Apartments: AED 2,500 – AED 4,000  
• 3-5 Bedroom Villas: AED 4,000 – AED 6,000  
• Luxury Villas: AED 6,000 – AED 10,000 or more  

Moving and Furnishing Costs

When considering the total expenses of buying property in Dubai, think about the costs associated with moving and furnishing. These expenses can significantly impact your budget, and whether they are mandatory or optional largely depends on your goals. If you’re fortunate enough to buy a resale home or a new property that comes fully furnished, you can skip. However, for those purchasing an unfurnished property, it’s crucial to factor in both moving and furnishing expenses.

Moving Costs

If you plan to relocate your existing furniture into your new home, calculate your moving costs in advance. Keep in mind that these costs can vary greatly depending on whether you’re moving locally or internationally:

• Local Moving Costs: Range from AED 1,000 to AED 15,000+  
• International Moving Costs: Range from AED 5,000 to AED 50,000+  

The final amount will depend on factors such as distance, quantity, and weight of your belongings, and the moving services you choose.

Furnishing Costs

In cases where you need to furnish your new home, costs can vary based on the quality, brand, and level of customization of the interior design. Here’s a general breakdown:

• Basic Home Furnishing: AED 10,000 to AED 200,000, influenced by the size and type of the property.  
• Luxury Furnishing: Ranges from AED 40,000 to AED 300,000+.