Think before you leap – affording your property dream in 2008

 

I want to buy a property in the new year but don’t know where to start. Any advice?

Buying a property is a good financial objective to have in the new year. Everyone should have an investment in property if possible. But there are many choices and decisions to be made when buying a property, most of which can be pretty stressful.

Firstly, consider what are you buying the property for, is it for investment purposes or are you buying to live in? If it is an investment, then you may decide to opt for an off-plan property, which will not be completed for some time. This often has the advantage as you can benefit from higher capital appreciation in the short term. You must, however, weigh this option up with the potential risks involved, such as construction delays.
 

If you can obtain a mortgage on the property (many off-plan developments have no lenders available), typically, after you have paid your deposit, the lender will pick up all the installments to the developer and you pay nothing until completion. Upon completion, you pay a single lump sum interest payment to cover the finance charges on the installments made, and you then commence the regular monthly mortgage payments. This can be helpful if you have to pay rent until the property is completed.


If you are buying a completed property then inevitably you will be paying a premium to the seller (profit over and above the original purchase price). Hence, the potential capital appreciation will generally be lower than off-plan. An advantage, however, is since the property is instantly habitable, you can generate a rental income from day one (unless of course you are going to live in it).

Make sure before you commit to a property purchase, you have considered all the financial implications. Ensure you have a decision in principle from a lender, too – this is essential. Most lenders will require mandatory life insurance to cover your mortgage liability. You will also need to attend a medical. Are you fit enough for the underwriters to agree your life cover? Maybe you need to work on reducing your cholesterol?

A mortgage broker may explain to you all the upfront and ongoing costs, which can often come as a shock. Remember, don’t over stretch yourself and always leave a buffer.
 

- Martin Kinsey is a Dubai-based independent financial advisor. If you have any questions for Martin, write to
primrose.skelton@awraqpublishing.com

 

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