Dubai real estate: How much should you earn to buy property worth $1 million?
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Dubai’s real estate market is booming, but buyers face specific financial requirements and hidden costs – here’s how much you should be earning to buy property worth $1 million, according to experts
Dubai’s real estate market is booming, with property transactions hitting record highs. As local and international investors pour into the emirate, the $1 million price point has become a key focus.
But in this competitive landscape, what does it really take to secure a piece of Dubai’s property pie?
Industry experts weigh in on the financial requirements and hidden costs that potential buyers need to consider before taking the plunge in this fast-paced market.
Prospective UAE buyers should earn between AED240,000 to AED550,000 annually
“Minimum AED240,000 or $65,760 subject to the client not having any additional loans, credit cards and being able to take the mortgage term of 25 years (potentially under the age of 40 as maximum age is 65). The older the person and the more debt they have the more they will have to earn,” Jeffrey De Souza, Head of Mortgages at Lomond said.
Property buyers and borrowers thinking about purchasing a property worth $1 million (AED3.67 million) can expect to put down a down payment of a minimum of $200,000 (AED734,578).
“In such cases, buyers should have a minimum income of AED500,000 – AED550,000 annually to comfortably afford the property. After calculating associated expenses and monthly debt, buyers would be paying a monthly mortgage of AED15,333 (based on a 25-year term and using a median affordability calculation),” he said, adding that while each bank differs from one another, some banks have a more “lenient affordability calculations”
In Dubai, both experts revealed, the typical down payment for a $1 million home in Dubai is 20 percent. However, this figure can vary based on factors such as age and credit score.
“Property buyers can expect to pay more in a down payment as well – this is purely dependent on the bank and how much the bank is willing to lend them,” he added.
Mortgages are usually assessed by debt-to-income ratio in Dubai
Meanwhile, when it comes to mortgage approval, lenders in Dubai use a debt-to-income ratio (DTI) to assess a borrower’s ability to manage monthly payments.
“The lenders will use 50 percent of income towards the Debt Service or Debt Burden Ratio. From the 50 percent they will deduct all monthly liabilities as well as 5 percent of your credit card limit and the remainder will be taken into consideration for your mortgage Debt Burden Ratio. The banks will then calculate based on a Stress Rate (normally 2 percent higher than the mortgage Rate) and the term of the Loan (Max 25 years or less subject to your age) to come up with a maximum Loan amount,” Lomond’s De Souza said.
“To calculate the DTI ratio, lenders first sum up all the borrower’s monthly debt obligations, including existing loans, credit card payments and the expected mortgage payment. They then divide this total by the borrower’s monthly income and the percentage in result is the DTI ratio. For instance, if a borrower has AED15,000 in monthly income and AED6,000 in monthly debt payments, their DTI ratio would be 40 percent,” Allsopp added.
When asked about special mortgage programmed for high-value properties, De Souza stated that there are none. However, Allsopp noted that some banks offer incentives such as preferential interest rates, reduced fees, or other benefits, on their mortgage products to attract high-net-worth individuals, such as preferential interest rates or reduced fees.
“To qualify for these perks, these individuals may need to open specific “premier” or “excellency” bank accounts within the same bank. These accounts typically require maintaining a substantial income level or a significant cash balance. These incentives are typically offered to those with a running business, high-earning individuals, and or those who have a substantially high credit score,” he said.
For monthly mortgage payments on a $1 million home, De Souza estimates “AED18,000 = $4,930 per month including Insurances.” Meanwhile, Allsopp suggests budgeting a minimum of AED15,000 for mortgage payments.
Regarding the impact of credit scores on mortgage qualification, “credit score affects your ability to get a mortgage at any loan amount not just at $1 million. If you have a poor credit score, the bank is more likely to decline the application at any loan amount,” De Souza said.
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“More important than the credit score is the credit usage and ability to prove there have been no previous defaults or missed payments. In the event there is a poor credit profile, we have seen banks reduce their loan to value limits or in the worst-case scenario, refuse to lend to buyers,’ Allsopp added.
Additional costs will be incurred aside from purchase price
As for property taxes and insurance, De Souza explained there are no property taxes in the UAE, except for purchasing costs.
“There are some banks that can incorporate a percentage of these into the loan, however this is subject to affordability. Insurances are normally calculated within the mortgage and the affordability,” he said.
Allsopp added that while insurance costs aren’t directly factored into affordability calculations, “property insurance and life insurance are often mandatory requirements when obtaining mortgage finance from the majority of banks.”
Other costs beyond the purchase price, according to both experts, include transaction costs such as DLD transfer fee, real estate agent fee, DLD mortgage registration fee, trustee office fee, valuation fee, bank processing fee, mortgage broker fee, conveyancing fee, NOC fees, service and maintenance charges and or community fees.
No difference in primary residences vs investment properties
Both experts agree that there is no difference in income requirements for primary residences versus investment properties.
“There is no difference in income requirement, the only thing that the lender will look at is the affordability. If the client can afford to pay either or all their mortgages with the income that they can prove and the client has a good credit score the lender will approve the loan. The income requirements are different for salaried clients and for self-employed clients that is the main differentiation in terms of income,” De Souza said.
For those aiming to purchase a $1 million property in the coming years, keeping a good credit score, not maxing out on credit cards, and aiming to only utilise a maximum of 80 percent of your credit limit, saving as much down payment as you can, speaking to a mortgage consultant to understand your affordability, are recommended.
“Your age will affect your affordability, therefore if you are over 40 and your income remains the same, each year that goes by your affordability will reduce which will mean that you will need a larger deposit,” he said.
Echoing the sentiment, Allsopp advised paying your monthly credit commitments on time and avoiding missed or late payments are crucial for buying property worth $1 million.
“It’s advisable to keep your credit utilization within a reasonable range and refrain from taking out personal loans within three months of applying for mortgage finance,” he concluded.