When you apply for a home loan at your local UAE bank, you may come across the term, “property valuation”. Most banks in the UAE require a property valuation before your bank mortgage is approved. The valuation determines how much amount you can borrow from the bank, and thus is a crucial step in the bank approval process.
What is a Property Valuation?
Property valuation is simply an assessment tool to understand how much your property is worth. This value shouldn’t be taken as the price of the property as the valuation factors in several components. The valuator basically looks at the property as a prospective buyer and determines what are the good points and bad points of the property.
Some of the things that may affect your property valuation are:
- New, Off Plan, or Resell the property
- Type of property – villa or apartment
- Size of the property – 2BHK or studio
- Location
- Upcoming developments – like Expo2020
- Floor – high-rise apartment with views of the Dubai Canal or Burj Khalifa
- Flat Plan – interior infrastructural design like a walk-in cupboard in the master bedroom
How does the Property Valuation Affect Your Mortgage?
The Loan to Property Value Ratio (LTV) determines the actual amount the banks can give you against your property. In the UAE, the Central Bank regulates the LTV by placing certain conditions on all banks and financial institutions that provide mortgage in UAE to residents, nationals, and non-resident communities. These Regulations also apply to shariah-compliant loans that are readily available in the UAE.
According to the Central Bank:
- UAE Nationals – completed properties valued at Dhs. 5 million or below are eligible for 80% of the property value. Anything above, the LTV will be 70% of the property value. For second homes or investment properties, the LTV must not exceed 65%.
- UAE Residents – completed properties valued at Dhs. 5 million or below can available LTV of 75%. Properties above this amount get 65% while a purchase of a second home or investment property stands at 60% of the property value.
- For incomplete or off-plan projects, the LTV is 50% irrespective if the borrower is a UAE National or a UAE Resident.
Why is the Bank Valuation Different from the Market Value?
You may be surprised to learn the property valuation that the bank has determined. This is a common complaint as most people assume banks will apply the market value. Yet market value is the amount your property developer is asking, or your real estate agent has set based on their criteria.
Bank’s valuation is based on the assessment of how much your property is worth if you are unable to make the mortgage payments. In other words, if the property is repossessed or needs to be sold in a distressed sale, the bank should be able to get back all the home loan amount. This valuation however may differ from bank to bank. You may want to shop around at the First Abu Dhabi bank, Dubai Islamic Bank, Mashreq Bank, Ajman Bank, RAK Bank, and so on before signing a home loan contract.
In the end:
Property valuation helps you understand how much amount you can get via a mortgage in UAE. Often you can ask real estate agents to get a rough idea about your property. The Dubai Land Department also does real estate valuation for a fee.