How Many Types Of Payment Plans Available In Dubai Real Estate ?

Dubai has become one of the most attractive real estate property markets within the world. With its world-magnificence infrastructure and business-friendly surroundings, many asset buyers are showing their interest in the Dubai market. However, with the extraordinary kinds of properties and payment plans to be had, selecting the proper payment technique can seem complicated. This article explores the various payment plans generally used in Dubai real estate transactions.

60/40 Payment Plan

Under the 60/40 payment plan, you need to pay 60% of the price during the construction phase. You can pay this in installments. The remaining 40% of the property price is paid upon handover of the property. This payment plan option offers a greater balanced distribution of bills during the development phase and handover, with roughly equal amounts payable during every stage.

Example:

Here is an example of Sobha Sea Haven 60/40 payment plan:

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70/30 Payment Plan

70/30 payment plan is a common payment plan in Dubai. It allows you to make a smaller upfront payment and finance the remaining balance over time. Here 70 % of property cost in installment and 30% upon completion.

This payment structure is beneficial for investment property buyers. It provides a low barrier to entry, allowing investors to purchase a property with only a third of the funds upfront. They can then utilize the occupied unit as a rental property to generate income. The rental proceeds can be used to cover the subsequent installment payments on the outstanding purchase balance.

Example

Here is an example of 70/30 payment plan of Damac lagoon Views

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40/60 Payment Plan

A 40/60 payment plan is another financing structure available for buying real estate in Dubai. Under this model, the buyer pays 40% of the agreed purchase price through installment payments made prior to receiving the keys/title to the property (known as the handover).

Once the handover is complete and ownership is officially transferred, the remaining 60% balance is then due in full. This final payment secures the property transfer and grants the buyer possession of their new home.

Compared to a standard 70/30 plan, the 40/60 option requires a larger portion of the funds to be paid upfront over time in the pre-handover period. However, it then consolidates the majority of the financial obligation into a single lump sum payment only owed once the buyer can access and reside in the property.

For those who need time to organize their finances but have the means to cover most of the cost shortly after moving in, the 40/60 structure may prove preferable to other alternatives that stretch payments out longer term. It provides flexibility in the funding timeline while still resulting in clear ownership once that final 60% threshold is crossed.

Example

Here is an example of Avenue Residence- 6 40/60 payment plan.

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80/20 Payment Plan

The 80/20 payment plan is a common financing structure utilized by real estate developers in Dubai for off-plan, or pre-construction, property sales.

Under this model, you need to pay 80% of the purchase price in stages throughout the construction period. This provides substantial cash flow support to the developer upfront as building work progresses.

Once construction is complete and handover of the finished unit occurs, the remaining 20% balance is then paid by the buyer. This final payment transfers ownership and delivers possession to the new homeowner.

Compared to standard post-handover payment plans, the 80/20 option shifts a greater portion of financial obligations to the pre-construction phase. This benefits developers through early instalment receipts to fund building costs.

Example:

Here is a 80/20 payment plan example of Emaar Farm Garden

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50/50 Payment Plan

The 50/50 payment plan is another flexible payment plan which provides home buyers in Dubai with a balanced and straightforward financing option.

Under this model, the purchase price is split evenly between installments during the construction phase and completion payments made after handover.

Specifically, buyers pay 50% of the agreed property value through staged transfers to the developer over the building period. This portion helps ensure adequate funds are delivered upfront to cover material and labor costs as construction moves forward.

Once the unit is fully finished, the developer will then hand over keys and finalize the transaction upon receipt of the remaining 50% balance. Clear ownership is granted to the new homeowner once this final financial obligation is fulfilled.

Compared to other plans that weight payments more heavily before or after possession, the 50/50 approach provides a sensible middle-ground. It offers certainty of timeline and cost to both parties, with installments distributed relatively evenly between the pre- and post-handover stages.

Example

Look at the payment plan of Cello to understand the splitting of 50/50 payment plan.

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10/90 Payment Plan

The 10/90 payment plan has emerged as a popular alternative to the widely used 1% monthly payment plan for purchasing properties in Dubai. Under this plan, buyers are only required to pay 10% of the total property value upfront at the time of booking.

The remaining 90% balance can then be paid either on possession of the unit or in monthly installments agreed upon between the buyer and developer. This provides more flexibility and options compared to the 1% installment structure.

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Post-Handover Payment Plan

A post-handover payment plan, as the name suggests, refers to a financing structure where the buyer receives ownership of the property after paying a certain initial percentage as down payment. The remaining balance can be paid in monthly installments even after moving into the home.

Typically, developers ask for 5% – 20% initially at the time of booking and another 10% – 15% on signing the sale agreement. The balance amount is paid in installments over 3 to 5 years after receiving the keys. Interest rates are fixed and processing is fast compared to traditional mortgages.

Eligible Property Types

Most developers in Dubai offer post-handover plans for both ready properties as well as those under construction or in the pre-launch stage. This includes apartments, townhouses, villas as well as commercial units. Penthouses and high-floor units also come with the flexibility of post-handover financing.

Some of the prominent developments like Emaar, Damac and others have entire payment plan sections on their websites where you can select the one that suits them best. The eligibility depends on the location, size, and value of the chosen property.

Types of Percentage

The ratio of this payment plan isn’t fixed and varies from one builder to another. However, you can often find the plan in the following ratio:

• 10:90
• 20:80
• 40:60
• 50:50
• 60:40
• 70:30
• 25:75

Benefits for Buyers

There are several advantages of opting for a post-handover payment plan:

• Option to own a property with a low down payment and invest cash elsewhere. This is ideal for those unable to afford large upfront payments.
• Move into your dream home and pay the rest of your rental income while enjoying tax benefits. No renting out your new place is required.
• Flexible monthly installments are better planned than lump sum amounts at the time of handover.
• Interest on buying property this way works out cheaper than renting over the long term. Once paid off, owning provides ongoing value appreciation.
• For units under construction, plans ensure pre-booking at lower rates compared to later stage payments. Developers also share construction-linked risks.
• Processes are faster and require lesser documentation than conventional mortgages. Plans provide instant home ownership.

Things To Consider

While post-handover plans make owning aspirational properties possible, there are certain aspects you need to scrutinize:

• Check penalties for late/missed payments as they tend to be high for these plans. Non-payment could result in legal action.
• Explore if pre-closure of the plan is allowed if one wishes to sell the property before full payment. Associated charges may apply.
• Interest levied is generally above average mortgage rates to offset risks for developers. Do cost comparisons.
• Plans are usually for 3-5 years only. Ensure monthly installments don’t burden cash flows in the long-term.
• Look into terms like deferment during unemployment or re-calculations for appreciation/depreciation in value.
• Projects may be delayed affecting projected rental yields as plans typically rely on it for re-payment.

RTO Payment Plan

A rent-to-own or RTO fee plan is a contractual agreement between a buyer and seller where the buyer’s month-to-month rent payments move toward purchasing the property in the end.

Here’s a simplified evaluation of how it really works:

• You enter into a lease agreement for a specific property for an agreed rental amount and contract period, usually 2-5 years.
• Your monthly rental payments are higher than normal market rents, but a portion (e.g. 50-70%) goes into an escrow account or is used to pay down the mortgage.
• After the agreement duration, you have the choice to purchase the property. The equity gathered in escrow from your apartment bills counts toward your down payment.
• You take out a mortgage to repay the closing stability and complete the acquisition.

Essentially, an RTO plan splits the property purchased into ranges – a rental period in which you’re constructing fairness, observed by way of assuming possession through a conventional mortgage. It spreads the expenses of purchasing over a longer period.

Who Are RTO Schemes Ideal For?

While the proposition of paying rent now and owning the home later seems universally appealing, Rent To Own schemes work best for certain profiles:

• New expat arrivals: RTO allows settling into Dubai’s housing market without a large initial commitment for new arrivals still gaining stability.
• Salaried individuals: Stable monthly income facilitates reliable rent payment for the lock-in period despite income fluctuations.
• Small business owners: Entrepreneurs often struggle to get mortgage finance approved due to inconsistent revenues. RTO schemes offer them respite.
• Retirees: Those looking to settle down in Dubai post-retirement find RTO flexibility more suitable to balance savings and ownership costs during transition.

However, RTO carries a higher risk for people with the possibility of near-term relocation or job loss. Overall assessment of individual financial circumstances and risk appetite is vital.

Which Type of Property Investment is Best Suited for RTO route?

While most Rent To Own schemes center around apartments, different property types carry varied pros and cons:

• High-rise apartments: Offer community living but can suffer from quality deficiencies in some buildings
• Townhouses: Balance communal facilities with private identity but limited supply makes options scarce
• Villas: Standalone luxury but require large budgets and suit those settling long term

New off-plan properties usually don’t feature on RTO at the launch stage when buyer demand is high anyway. So choices would need to be made from already completed options in the market.

Fees for Rent-to-Own Schemes in Dubai

As per the Dubai Land Department, the following are the fees to be expected while entering into the rent-to-own schemes in Dubai.

For Seller: 2% of the sale price

For Buyer:

• 2% of the sale price
• AED 250: Title Deed issuance fees
• Map Issuance Fees (Varies based on the type of property)
• 0.25% of the rent amount
• AED 10: Knowledge Fee
• Registration Fees: AED 4,000 for properties equal to or exceeding AED 500k or AED 2,000 for properties priced at less than AED 500k

Benefits of an RTO Payment plan

RTO plans offer numerous benefits over traditional property purchases for each customer and dealer:

For Buyers:

• Build equity gradually without a huge lump sum down payment
• Sufficient time to improve credit score score and save for closing costs
• Opportunity to put money into an appreciating asset from day one
• Lock in purchase price to take advantage of future marketplace increases
• Test out ownership responsibilities before financial commitment

For sellers:

• Access a new pool of buyers unable to purchase conventionally
• Ensure long-term tenants who have ownership incentives
• Guaranteed sale as soon as apartment duration is over
• Maintain stable cash flow from higher rents vs traditional lease

Considerations when getting into an RTO

While RTO plans make homes extra low-cost, it is nevertheless a chief lengthy-term economic duty. Here are some key issues:

• Higher overall payments: Rent and ultimate purchase charge will likely be higher than traditional alternatives.
• Market risks: Appreciation or depreciation influences your equity and final buy charge.
• Credit test: Ability to qualify for a mortgage at buy desires assessed in advance.
• Repairs and preservation: Responsibility frequently falls on renter for the duration of rent period.
• Fees and further expenses: Transfer fees, appraisal fees additionally aspect in final fee.
• Breach penalties: Failure to buy can bring about misplaced choice cash or different damages.

Doing thorough due diligence on the property and RTO settlement terms is vital earlier than signing up to keep away from future surprises. An skilled actual property attorney can help as properly.

1 % Payment Plan

Beside the above mentioned plan, the 1% payment plan is a very popular payment plan in Dubai. It allows buyers to purchase a property by paying 1% of the purchase price as a monthly installment until the full amount has been paid off.

For example, if you buy an apartment worth AED 1,000,000, your monthly payment would be AED 10,000 (1% of AED 1,000,000) spread over up to 100 monthly installments or approximately 8 years.

This drastically reduces the upfront cash commitment compared to the more traditional options of paying 20-30% as a down payment and taking a mortgage for the rest at a much higher interest rate.

How Does it Work?

Typically, large real estate developers in Dubai offer the 1% payment plan for specific projects to boost off-plan sales. They partner with banks or financial institutions that provide fund the purchase.

Here are the basic steps involved:

You select a property from an eligible project and sign an agreement with the developer and partner bank.

• You pay a nominal booking amount upon signing.
• You then pay 1% of the purchase price as the monthly installment.
• Upon paying around 50% of the price, you receive the title deed providing ownership rights.
• Payments continue at 1% of the price each month until it is fully cleared.

The key difference versus rent-to-own schemes is that under the 1% plan, you become the legal owner right away instead of just a renter with an option to buy later. You also do not pay any rent – just the 1% installment until the price is paid in full.

Benefits of the 1% Payment Plan

For Buyers:

• Low Entry Point: The minimal 5-10% booking amount makes for an extremely accessible way to purchase investment property in Dubai.
• Extended Payments: Stretching payments over construction means funds aren’t due all at once. Buyers can pay in steps from periodic income.
• Hedge Inflation: As installments are milestone-based rather than interest-charged, the plan helps protect from property price hikes over the 2-3 year build period.
• Rental Returns: There’s an opportunity to generate ongoing rental income from day one by furnishing units for lease after booking, offsetting installment costs.
• Mortgage Access: Upon handover, buyers can use the completed unit as mortgage collateral to fund the final payment through a competitive bank loan.

For Developers:

• Upfront Sales: The low booking commitment drives quicker off-plan sales velocity. Early funding supports embarking construction on schedule.
• Cash Flow: Regular installments provide predictable cash injection aligned with project progress and costs incurred. Less reliance on bank financing.
• Sales Volume: More listings sell faster with buyers able to commit on minimal initial payment. Higher turnover grows scale and market reputation.
• Customer Loyalty: Installment-paying clients have vested interest in project success, creating positive word of mouth for future launches.

Key Things to Consider

While an attractive purchase option, buyers must do their due diligence and factor in certain important aspects:

• Property Value Fluctuations: Appreciation is not guaranteed and property prices can decrease over the long tenure of repayments.
• Rental Income Reliability: For investment properties, analyze vacancy rates, rental yields, and property management expenses to ensure positive cash flows.
• Hidden Developer or Bank Charges: Thoroughly review all documents for any potential future additional costs.
• Late Payment Penalties: Clarify policies in case you are temporarily unable to make monthly payments.
• Interest Rate Risk: Fixed rate plans offer certainty but floating rates can increase EMI burdens substantially.
• Developer Financial Strength: Check the credibility and financial health of the developer backing the project.
• Opportunity Cost of Capital: Weigh if funds would generate better returns elsewhere during the 8-10 year payback period.

With prudent research and budget planning based on one’s goals and risk profile, the 1% payment plan can be a very smart long-term investment decision. But it also requires diligence, commitment and patience.

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Conclusion

With options like cash payments, bank financing, installment plans for ready or under-construction properties, Dubai real estate caters to both retail and institutional investors. While the most feasible alternative depends on individual budgets, goals and risk profiles, exploring all available options is recommended before finalizing investments. Proper due diligence and understanding terms can help navigate the different payment modes smoothly.

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